Bangkok--27 May--Fitch Ratings
Fitch Ratings has said today that the political unrest in Thailand has hit the hotel and retail sectors particularly hard as they are exposed to tourism, which faces a severe downturn in Q210 and Q310. However other sectors, such as oil & gas, petrochemicals, utilities, telecom, building materials and construction & property, should see limited impact as several of these sectors are more reliant on export markets and the overall Thai economy, which is still expected to report positive growth of 3.8% for the year.
The recent political unrest has caused a sharp decline in the occupancy rates of hotels in downtown Bangkok - the average occupancy rate in April 2010 was 40% with some hotels seeing occupancy of less than 10%, dropping sharply from an average of 70% in Q110. Though, hotels in other parts of the country have fared better. That said, a further drop in the number of tourist arrivals could affect the nationwide hotel sector in the next two quarters. Fitch expects the turmoil to lead to a further drop in the number of tourist arrivals in Q210 and Q310; if the situation stabilises, the agency expects tourist arrivals to recover in Q410. Nevertheless, given that the performance of Thailand's hotel sector has been weak since 2008 and that the operators carry high fixed operating costs, hotel operators with high financial leverage are more vulnerable.
The retail sector is also likely to be adversely affected by the expected weakening in consumer confidence and falling tourist arrivals. However, retail developers and operators who earn rental incomes from tenants may be buffered by their long-term lease agreements. In addition, retail operators in community malls, which serve residents in the immediate vicinities, and/or those with geographical diversification will be less affected by the weakening environment, as compared to those shopping malls in the downtown or tourist destinations that cater to leisure visitors.
Although the turmoil will not immediately affect the cash flows of the retail developers and operators, it may curb their ability to increase rental rates for the next 12 months, and may cause the turnover rate to increase once the lease contracts expire. In addition, for the newly-launched or soon-to-be-launched shopping centers, the payback period may be lengthened due to the pressure on rental increases and from the expected slowdown in the take-up rate. Given an expected weakening performance, the financial leverage of retail developers and operators, as measured by net adjusted debt to EBITDAR, is expected to increase. Likewise, operators with high financial leverage from large debt-funded investments over the last 12-18 months are more vulnerable.
Fitch will closely monitor the impact on the companies potentially affected by this turmoil, namely MBK Center Public Company Limited (MBK, 'A-'(tha)/Stable) and Siam Future Development Public Company Limited (SF, 'BBB+(tha)'/Negative).
As of May 26, 2010, Fitch maintains coverage of 24 corporates in Thailand.
Applicable criteria available on Fitch's website at www.fitchratings.com: 'Corporate Rating Methodology', dated 24 November 2009.
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Contacts: Lertchai Kochareonrattanakul, Somruedee Chaiworarat, Vincent Milton, Bangkok, +662 655 4755.
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.
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Corporate Rating Methodology