Bangkok--17 Sep--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned an expected ‘AA+(tha)’ National Long-term rating to Krungthep Land Company Limited’s (KLAND) debentures with three different maturities. The debentures, which are guaranteed by Krung Thai Bank Public Company Limited (KTB, ‘AA+(tha)’/ Stable), have also been assigned a Stable Outlook. The ratings are as follows:
THB500m debentures due 2013 at ‘AA+(tha)’;
THB250m debentures due 2014 at ‘AA+(tha)’; and
THB250m debentures due 2015 at ‘AA+(tha)’.
The ratings are based entirely on the irrevocable and unconditional guarantee of the debentures’ principal and interest payment by KTB. The guarantee also includes other expenses of up to THB50m.
The ratings of KTB are underpinned by strong government ownership and support, as well as its improving financial strength. KTB is Thailand’s second-largest bank with an 18% market share in 2009. Its major shareholder is the Bank of Thailand’s (BOT) Financial Institutions Development Fund, with a 55%-stake. Fitch believes there is a high probability KTB would receive state support when needed, due to its size and importance to the financial system and economy, as well as its majority state-ownership and control.
KTB reported stronger performance in H110 compared with H109, with a 23% increase in net profit to THB6.4bn and return on assets of 0.8%, driven mainly by lower funding costs and higher fee income. However, KTB’s net interest margin (NIM) declined to 3% in H110 (2009: 3.2%) due to increased exposure to lower yielding loans to the government sector and government bonds. Given that the economic recovery is on track, Fitch expects KTB to continue to report a strong performance for 2010 helped by stronger loan growth (up 8.4% ytd).
The bank’s impaired loans fell to THB82.1bn or 7% of total loans (end-2009: THB85.5bn or 8% of total loans) as overall economic conditions improved in H110. Even so, downside risks to asset quality remain given the rise in special mention loans since mid-2008. Moreover, KTB’s reserve coverage ratio remained weak at 53.6% at end-June 2010, implying provisioning risks remain. However, Fitch notes that the bank’s higher exposure of government-related loans may partially account for the lower coverage.
KTB’s funding and liquidity remain stable as it has one of Thailand’s strongest local deposit franchises as most state enterprises and government employees deposit their savings with the bank. The bank’s loan to deposit ratio remained moderate at 96% at end-June 2010 (end-2009: 89.1%). KTB’s strong Tier 1 capital ratio of 9.7% at end-June 2010 should also help to buffer against downside risks.
Founded in 1984, KLAND initially focused on developing medium- to high-end single detached house (SDH) projects. KLAND later expanded into condominiums by entering into a joint venture with Frasers (Thailand) Pte Ltd. (a 100%-owned unit of Frasers Centrepoint Limited (FCL), one of Singapore’s largest residential developers) to develop its first condominium project. The company has also diversified its product mix to include townhouses. FCL became KLAND’s major shareholder via Frasers (Thailand) Pte Ltd. in 2005 and currently holds 40% of KLAND’s shares. Property Perfect Public Company Limited’s (PF) holds 20% of KLAND’s shares while the remaining 40% is mainly owned by Thai entrepreneurs. KLAND’s leverage ratios still remain very high with net adjusted debt to last-12-month EBITDAR of 17x at end-H110, although its total debt declined to THB3.0bn at end-H110 from THB4.4bn at end-2009 due to the repayment of The Pano’s project loan concurrent with the ownership transfer of the condominium units.
Contacts:
Primary Analyst
Pimrumpai Panyarachun
Associate Director
+66 2655 4752
Fitch Ratings (Thailand) Limited
Wave Place 13th Fl., Wireless Road, Lumpini, Patumwan,
Bangkok 10330, Thailand