Bangkok--30 Jun--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed Property Perfect Public Company Limited's (PF) THB520m three-year senior secured debentures, with partial guarantee provided by Siam City Bank Public Company Limited (SCIB, 'A-(tha)'/RWP), at 'BBB+(tha)'. The Outlook is Stable. The debentures are secured by freehold land with an average appraisal value of THB884m, representing a value-to-loan ratio (VLR) of 170%. PF must maintain a VLR of at least 160% under the debentures covenant. The debentures are partially guaranteed by SCIB with an amount of THB260m, or 50% of the principal.
The rating reflects the partial bank guarantee of PF's debentures, as it standalone financial strength remains relatively weak. The credit enhancement from a 50% partial guarantee results in a two-notch uplift from PF's senior secured debentures.
PF's earnings in 2009 were weaker than expected mainly due to a delay in the sale of a land plot to The University of Thai Chamber of Commerce (UTCC). Its EBITDAR margin declined to 14% in 2009 from 16% in 2008, driven by higher administrative costs as a percentage of sales and lower condominium gross margins. Together with higher-than-expected land acquisition, PF's financial leverage, as measured by net adjusted debt to EBITDAR, increased to 6.8x at end-2009 from 4.0x at end-2008. However, PF's earnings are expected to improve in 2010 on the back of an expected better housing market, and aided by a large number of new project launchings in 2010. In Q110, PF's revenue grew by 66% yoy to THB2.4bn, mainly driven by land sold to UTTC.
PF's financial leverage is expected to remain high over 2010-2011 as a result of higher land acquisition and increasing working capital. This is despite an aggressive expansion plan in 2010 (new launchings worth THB15.1bn), which will increase its cash flow generation and help increase its revenue from the condominium sector in the medium term. Fitch expects PF's financial leverage to decline by 2012 due to an expected cash inflow from the ownership transfer of the condominium projects.
PF's rating is constrained by the cyclical nature of the residential property development business. Other key credit risks include the political instability in Thailand, which could result in a weaker-than-expected housing market, intense competition and higher construction costs.
The Stable Outlook reflects Fitch's expectation that PF's strong brand recognition and long experience in the industry should help maintain its market competitiveness and financial position consistent with the current rating level over the medium-term.
Positive rating triggers include a significant improvement in PF's earnings performance and sustainable reduction in financial leverage. However, weaker-than-expected financial leverage and liquidity position, or lower than expected presales during the period of expansion could negatively affect the rating.
Applicable Criteria available on Fitch's website at www.fitchratings.com: 'Corporate Rating Methodology', dated November 24, 2009; 'Criteria for Partial- Credit Guarantees in Emerging Markets', dated July 30, 2009; and 'National Ratings - Methodology Update', dated December 18, 2006.
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Contacts: Pimrumpai Panyarachun, 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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