Bangkok--11 Aug--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed the Thailand-based MBK Public Company Limited’s (MBK) National Long-term rating at ‘A-(tha)’ and National Short-term rating at ‘F2(tha)’. The Outlook on the Long-term rating remains Stable.
The ratings reflect MBK’s established market position in the shopping centre and hotel business in Bangkok, its strong and stable cash flow generation from its core shopping centre (i.e. MBK Center), its expected earnings growth and higher diversification from its investments in shopping centres in new locations, hotel projects and golf course. MBK Center leverages on its prime location with strong traffic flow, established brand, unique and differentiated market positioning from the competitors in the same area, its diversified tenant base and its varied end-customer profile.
However, the ratings are constrained by MBK’s exposure to tourism and its high concentration to a core single asset located in downtown Bangkok. Hotel and retail sectors in Thailand have been affected by a sharp fall in tourist arrivals since the first quarter of 2010 due to political unrest but the agency expects this to improve by year-end 2010. Another constraint is the impact of a substantial increase in annual lease expense from April 2013 on its medium-term profitability, financial coverage and leverage. Annual lease expense in the first three years from April 2013 is THB695m per year (from currently THB85m a year), with a step-up provision of 6% every year thereafter. MBK plans to increase rental rate and diversify into new businesses to lessen such impact.
In 9MFY10, although MBK’s consolidated revenues rose by 1.9% yoy to THB4.5bn, its EBITDAR dropped by 17.3% yoy to THB1.2bn. A fall in EBITDAR was mainly attributable to the lower margin in its rice milling business and the renovation of Paradise Park. Meanwhile, revenues from hotel operations also showed a marginal decrease of 1% yoy. The weakening EBITDAR caused MBK’s financial leverage, as measured by adjusted net debt to last 12-month (LTM) EBITDAR, to rise to 4.4x at end-March 2010 from 4.2x at FYE09 (end-June 2009). That said, the cash inflow of approximately THB3bn from tenants who renewed their expired lease agreements to the long-term contracts, helped reduced its net debt to some extent. Nevertheless, given the additional proceeds of THB3.8bn received from the sale of Siam City Bank Public Company Limited shares in June 2010, its financial leverage is expected to improve to below 3.0x at FYE10 and will likely hover in the range of 2.5x-3.0x over FY11-FY13.
The Stable Outlook reflects the expectation that MBK can maintain its financial flexibility and its credit profile consistent with its current ratings over the medium-term, as supported by its established market position and solid cash flow generation. A deteriorating operating performance and financial leverage as a result of a prolonged weak operating environment and/or higher-than-expected debt-funded investments could negatively affect the ratings. Meanwhile, the agency expects a positive rating action over the next one to two years to be unlikely, given the upcoming sharp increase in lease expense under the renewed lease agreement.
Applicable Criteria available on Fitch’s website at www.fitchratings.com: ‘Corporate Rating Methodology’, dated November 24, 2009.
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Contacts: Somruedee Chaiworarat, Bangkok, +662 655 4762; Pimrumpai Panyarachun, +662 655 4752; Vincent Milton, +662 655 4755.