Bangkok--27 May--TRIS Rating TRIS Rating Co., Ltd. has assigned a rating to the proposed issue of up to Bt2,000 million in senior debentures of MBK PLC (MBK) at “A-”. At the same time, TRIS Rating has affirmed the company rating and current issue ratings of MBK at “A-”. The rating outlook remains “stable”. The ratings reflect MBK’s well-recognized downtown shopping center, with its strong traffic and stable cash flow. In addition, its strong balance sheet and the ability to raise funds through long-term lease arrangements with tenants after renewal of its leasehold contract also support MBK’s rating. However, these strengths are partially offset by MBK’s significantly-higher leasehold payments, which will take effect following the expiry of the existing contract in 2013, and the company’s expansion plans for the next few years, which will require substantial capital expenditures. The proceeds from the proposed debentures will be used to fund the company’s expansion plan, including the new golf course and shopping centers, as well as the renovation of its existing hotel. The “stable” outlook reflects the expectation that MBK will be able to continue to generate stable cash flow from MBK Center. Despite substantial capital expenditures planned for 2008-2010, the company is expected to maintain its targeted debt to equity ratio at less than 1 times in the medium term. The company’s credit profile could be revised upward if it has more diversified sources of recurring cash flow or is able to pass through a substantial amount of its increased costs under new lease agreement to its tenants, as that would enable the company to maintain its strong balance sheet. TRIS Rating reported that MBK was founded in 1974. Currently, Thanachart Capital PLC (TCAP) and other companies in the TCAP Group are MBK’s major strategic shareholders, holding a 21% stake. MBK operates MBK Center, a well-known shopping center in downtown Bangkok. The company is also engaged in the hotel, golf course, residential property and rice-mill production businesses. However, despite a diverse portfolio that comprises many businesses, MBK’s performance is still mostly reliant on MBK Center. The company’s strategic properties, MBK Center and the Pathumwan Princess Hotel, are located on leasehold land in downtown Bangkok. In recent years, the two properties have generated approximately 45% of MBK’s revenue and 70% of its cash flow. MBK’s lease for the two properties, with expiration due in 2013, was renewed in late 2007, after the terms and conditions were approved by the Cabinet in September 2007 and agreed to by the landlord and MBK. Under the renewed contract, which will start in 2013, MBK’s annual lease payments are far higher than the rate set forth in the existing contract. However, the renewal of the lease contract with the landlord will enhance the company’s financial flexibility as MBK can raise funds through long-term leases that require tenants to make substantial up front payments.TRIS Rating said that in recent years, MBK’s performance has been solid. Revenue has continued to increase, reaching Bt4,248 million in the first nine months of fiscal year 2007/2008, up from Bt3,967 million for the same period of 2006/2007. MBK’s profitability continues to be healthy as its current leasehold contract priced its properties far below the current market prices. Operating profit margins improved from around 36% during the previous three years to 39% in the first nine months of 2007/2008. However, funds from operations (FFO) to total debt significantly declined from 49% in 2006/2007 to 19% in the first three quarters of 2007/2008. Though, MBK’s cash flow protection significantly declined due to the debt incurred to fund the advance payment of its renewed lease contract, the decrease was anticipated and had been incorporated into the existing ratings. In addition, MBK’s earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage has been maintained at 15-19 times since the recent years. MBK’s cash flow protection and financial leverage will remain strong over the next five years before the conditions of the new lease agreement are taken into consideration in 2013. MBK’s large scale investments (representing 26% of total assets) reflect its policy to build up a sizable portfolio of companies in which MBK has no direct control. These investments provide MBK with a consistent dividend stream and a certain degree of financial flexibility, said TRIS Rating.