Bangkok--21 Jul--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed MBK Public Company Limited's (MBK) National Long-term rating at 'A-(tha)', National Short-term rating at 'F2(tha)' and its THB3.0bn senior unsecured debentures No. 1/2007 due 2010 at 'A-(tha)'. The Outlook remains Stable.
The ratings are based on MBK's established market position in the shopping centre and hotel business in Bangkok, its strong and stable cash flow generation from its main shopping centre, MBK Center, as well as expected earnings growth and higher diversification from its new investments. MBK Center's key competitive advantages include its prime location with strong traffic flow, established brand, and unique and differentiated market positioning from its competitors in the neighborhood, which could attract diversified tenant base and varied end-customer profiles. EBITDAR generated by MBK Center contributes about 60%-65% to MBK's consolidated EBITDAR.
The ratings also reflect a weakening operating environment as a result of the global economic recession, ongoing local political instability and H1N1 Influenza epidemic. However, unlike tenants whose earnings are directly dependent on consumer spending, retail operators like MBK have some cushion against the economic downturn as their earnings are, to some extent, secured by lease terms.
Another key credit concern is a sharp increase in MBK's financial leverage to fund new investments in its core businesses and non-core marketable securities. About 50% of its investment in non-core marketable securities is an equity investment in Thanachart Capital Public Company Limited (TCAP, 'A-(tha)'/Stable), its major shareholder. The current high level of these non-core investments is also a concern.
In 9MFY09 (ending March 2009), despite the global economic recession and local political unrest, MBK's consolidated revenues rose by 3.5% yoy to THB4.4bn, mainly driven by a 23% increase in revenues from its shopping center business (which consolidated revenues from the newly-acquired Seri Center). Revenues from its hotel and real estate business, however, dropped 26% and 17% yoy, respectively. Adjusted EBITDAR (excluding income from rental deposits and advance income) increased by 1.6% yoy to THB1.5bn while adjusted EBITDAR margin fell to 33.9% from 34.6% a year earlier.
MBK's financial leverage as measured by adjusted net debt to adjusted last 12-month (LTM) EBITDAR, rose to 4.2x at end-March 2009 (end-June 2008: 3.3x), as a result of debt-funded investments; it is expected to improve to 3.0x in FY10 due to expected large cash inflow from the conversion of short-term to long-term leases, its flexible investment plan and an expected recovery in tourism. MBK's liquidity position is manageable as supported by its cash balance of THB271m at end-March 2009 and its strong and stable cash flow generated from MBK Center.
The Stable Outlook reflects the expectation that MBK can maintain its financial flexibility and its credit profile over the medium term. A deteriorating operating performance and financial leverage, as a result of a prolonged unfavourable economic environment or higher-than-expected debt-funded investments, could negatively affect the ratings. A significantly stronger and more stable operating cash flow from the expansion and diversification in its businesses, as well as financial leverage of below 2.0x on a sustained basis, could positively affect the ratings.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(tha)' for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
Contacts: Somruedee Chaiworarat, Bangkok, +662 655 4762; Pirumpai Panyarachun, Bangkok, +662 655 4752; Vincent Milton, Bangkok, +662 655 4755.
Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email: [email protected].
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.