TRIS Rating Assigns “A/Stable” Ratings to “MBK’s” Senior Debentures of Bt300 Million and Bt400 Million

TRIS Rating Co., Ltd. has affirmed the company and current senior debentures ratings of MBK PLC (MBK) at “A”. At the same time, TRIS Rating has assigned “A” ratings to MBK’s two issues of senior debentures worth Bt300 million and Bt400 million (MBK188A and MBK188B). The outlook remains “stable”. The proceeds from the two new debentures are used for working capital. The ratings reflect MBK’s position in the commercial property development industry, the stable cash flows from its contract-based retail space leasing business, a close relationship with Thanachart Group, the ability to maintain an acceptable level of leverage, and its strong financial flexibility from the sizable investments in marketable securities. These strengths are partially offset by an upcoming rise in its operating costs from a new leasehold contract which will take effect in 2013 and the expansion into the motorcycle financing business. The “stable” outlook reflects the expectation that MBK will continue to receive reliable cash flows from its retail properties. The company is expected to maintain the quality of its motorcycle loan portfolio through its stringent approval and collection procedures. With moderate amounts of capital expenditures planned for 2011-2012, the company is expected to maintain its current leverage level, as measured by the total debt to capitalization ratio.

TRIS Rating reported that MBK was founded in 1974. Thanachart Capital PLC (TCAP) and other companies in the TCAP Group are MBK’s current major shareholders, holding a 20% stake in total. MBK is currently engaged in these business segments: retail property for rent, hotel, golf course, residential property development, rice and finance. MBK owns and operates MBK Center, a well-known shopping center in downtown Bangkok. The company’s performance is heavily reliant on its core properties, MBK Center and Pathumwan Princess Hotel, despite its diverse business portfolio. These properties are located on leasehold land close to the Siam Square area in Bangkok. In recent years, the two properties have generated approximately 40% of MBK’s revenue and 65% of cash flow.

To mitigate business concentration risk, MBK has gradually expanded its retail property business. The company has a 31% stake in Siam Piwat Co., Ltd., which owns and operates shopping centers in the Siam Square area. Siam Piwat owns 100% of Siam Center (18,700 square meters, sq.m.) and Siam Discovery Center (24,890 sq.m.), and has a 50% interest in Siam Paragon (186,010 sq.m.). In addition, a 50% joint venture (JV) between MBK and Siam Piwat has completely renovated the Paradise Park (formerly Seri Center) shopping mall (90,000 sq.m.), which was fully operational in July 2010. In August 2011, MBK launched its first community mall on Rama IX road, The Nine, which has retail and office space of 10,267 sq.m. and 9,052 sq.m., respectively. As of August 2011, MBK’s portfolio of retail property and office space covered 203,053 sq.m. and 57,973 sq.m., respectively.

Apart from the commercial property business, TRIS Rating said that MBK acquired T Leasing Co., Ltd. (TLS), a motorcycle financing business, in April 2010. TLS’s outstanding motorcycle loans were Bt901 million at the end of June 2011. The loan quality was satisfactory with a ratio of non-performing loans (NPL) to total loans of 3.38%. However, the ability to control asset quality, while expanding the size of the loan portfolio, remains a challenge for MBK.

Although the tourism industry in Thailand has been negatively affected by worldwide economic conditions and domestic political unrest, MBK’s operations have held at an acceptable level. In FY2010/2011, revenue increased by 40% year-on-year (y-o-y) to Bt7,564 million, after the Paradise Park shopping mall was opened, the finance business started up and the hotel business recovered. The operating profit margin declined from 32.59% in FY2009/2010 to 30.04% in FY2010/2011. Funds from operations (FFO) stayed at Bt1,700-Bt1,800 million for three consecutive fiscal years (FY2007-FY2009) but sharply increased to Bt3,489 million in FY2009/2010. The rise was the result of the execution of long-term leases in MBK Center in late 2009 which raised Bt3,000 million. However, in FY2010/2011, FFO dropped to Bt2,085 million. Thus, the FFO to total debt ratio decreased from 45.88% in FY2009/2010 to 22.65% in FY2010/2011. The level of debt increased from Bt7,605 million at the end of June 2010 to Bt9,207 million at the end of June 2011 and the total debt to capitalization ratio increased from 38.64% at the end of June 2010 to 42.16% at the end of June 2011. However, the total debt to capitalization ratio is expected to decline after the maturing debentures are repaid. The company’s liquidity position remains satisfactory. As of June 2011, it had cash on hand of Bt2,570 million while its marketable securities portfolio was worth Bt4,496 million, said TRIS Rating. -- End

Company Rating: Affirmed at A Issue Ratings: MBK137A: Bt3,000 million senior debentures due 2013 Affirmed at A MBK163A: Bt2,000 million senior debentures due 2016 Affirmed at A MBK188A: Bt300 million senior debentures due 2018 A MBK188B: Bt400 million senior debentures due 2018 A Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: [email protected], Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2011, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.