TRIS Rating has lowered the company rating of Rojana Industrial Park PLC (ROJNA) to “BBB+” from “A-” with “stable” outlook. The downgrade reflects the longer time ROJNA needs to
restore its financial strength after the severe flood in 2011 because power sales have rebounded slower than expected and the future prospects of Rojana Industrial Estate in Ayudhya province
remains uncertain. The rating also takes into consideration ROJNA’s capable management team in crisis management, the reliable income stream from electricity sales, diversification that ROJNA
now has after it acquired new industrial estates, and the strong support from its major shareholders and Japanese partner. The volatile nature of the industrial property market and high leverage
balance sheet are rating’s concern. The “stable” outlook reflects an expectation that power and utilities businesses will generate reliable cash flow streams for ROJNA. The large auto maker in the
new industrial estate will help boost demand for industrial lands and help offset the weak demand for lands in ROJNA’s estate in Ayudhya province. ROJNA’s capital structure and profitability are
expected to improve gradually as its industrial land sales and power units continue to recover.
ROJNA is one of the leading industrial property developers in Thailand, established in 1988 by the Vinichbutr family and the Sumitomo Group. In addition to selling industrial property and utilities,
the company also developed condominium projects in Thailand and China. During 2007-2011, sales of industrial and residential property accounted for 60% of ROJNA’s total earnings before
interest, tax, depreciation and amortization (EBITDA). The remaining 40% was from the sales of electricity and water, which were provided to Electricity Generating Authority of Thailand (EGAT)
and industrial customers in Ayudhya province.
Rojana Industrial Park in Ayudhya was inundated from 10 October until 5 December 2011. Most of ROJNA’s operating assets, which are located in Ayudhya province, were shut down in the
fourth quarter of 2011 and closed for repair in 2012. In 2012, about 20 out of more than 200 companies in Rojana Industrial Park in Ayudhya province were closed and relocated. Most of 20 firms
were small enterprises. To increase investors’ confidence in Rojana Industrial Park, the company constructed flood protection system, a 77-kilometer dyke around the industrial park in Ayudhya
province.
Despite the modest number of factory shutdowns and relocations plus flood protection, the sale of industrial land in Rojana Industrial Park was soft. ROJNA sold about 65 rai of land in 2012,
compared with 400-650 rai per year before the 2011 flood. To mitigate its dependency on Rojana Industrial Park in Ayudhya province, ROJNA acquired two new industrial estates, Pluagdaeng
Industrial Park in Rayong province and Properity Industrial Estate in Prachinburi province. in the east of Thailand. The total acquisition cost was about Bt1,435 million. After the acquisitions,
ROJNA’s portfolio of industrial estates became more geographically diversified. ROJNA now owns and operates four industrial parks in Ayudhya, Rayong, and Pranchinburi provinces. In 2012,
ROJNA sold 2,762 rai of industrial land, 2,698 rai in new industrial estates in Rayong and Prachinburi provinces and 65 rai in Ayudhya province. The big land plots sold to one auto manufacturer
and one power producer in newly acquired estates drove total land sales. As of March 2013, ROJNA had remaining saleable land totaling 5,777 rai. Approximately 50% of the remaining salable
land were located in Ayudhya and 25% were located in Prachinburi.
In addition to industrial estates business, ROJNA also holds a 41% stake in Rojana Power Co., Ltd. (Rojana Power), located in Rojana Industrial Park in Ayudhya province. ROJNA’s electricity
generating capacity will increase to 432 megawatts (MW) in the third quarter of 2013, comprising currently operated 267 MW, 55 MW from expansion phase, and a new 110 MW under the Small
Power Producer (SPP) scheme. ROJNA’s 267-MW power plant was flooded, shut down, and declared force majeure to its counter parties in 2012. The repairs and equipment refurbishments
were completed by the end of 2012 and the plants gradually returned to operation. In the first quarter of 2013, Rojana Power sold 220 gigawatt hours (GWh) of power, comprising 77 GWh sold
to EGAT and 147 GWh sold to industrial users. The volume sold to industrial customers were about 50%-60% of the normal volume of 250-280 GWh it sold to industrial users per quarter before
the flood.
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In 2012, the flood halted operations in most business segments except condominium business in China. However, the company’s liquidity was properly managed. In addition to installment
payments from land sales, ROJNA received compensation from insurance companies of about Bt1,300 million during 2012. ROJNA also successfully divested a hotel property in China for US$32
million in 2012. In addition, the company had cash received from exercise of its warrants and capital increase in Rojana Power totaling Bt1,300 million in 2012.
The company’s total revenue remained good at Bt6,171 million in 2012 and Bt1,726 million in the first quarter of 2013. The revenue was driven by the recognition of revenue from industrial lands
sold before the flood and from the sales of condominium in China, according to the ownership transfer accounting method. Despite the strong revenue base in 2012, the company’s profitability
declined substantially because of the high operating leverage and interest expenses. Earnings before tax declined to Bt129 million in 2012 and turned to be loss of Bt186 million during the first
quarter of 2013. However, it reported net profit of Bt1,194 million in 2012 and Bt350 million in the first quarter of 2013 due to compensation from insurance companies of Bt1,214 million recorded
in 2012 and Bt941 million in the first three months of 2013. ROJNA’s capital structure has deteriorated due to its ongoing heavy capital expenditures and weak financial performance during the
operational shutdowns. Total debt jumped from Bt12,244 million in 2011 to Bt19,423 million at the end of 2012 and to Bt19,883 million as of March 2013. The total debt to capitalization ratio
increased to 65.6% as of March 2013 from about 60% during 2009 to 2010.
Looking forward, ROJNA’s financial profile is expected to gradually recover. By the end of 2013, power sold to EGAT under the SPP scheme will increase to 180 MW from the current level of
90 MW. ROJNA also plans to sell additional 50 MW of its expansion capacity to EGAT under non-firm contract. Demand for industrial lands is expected to remain good, especially in the non-
flooded area in the east of Thailand. The value of projects applied for the Board of Investment’s (BOI) promotional privileges rose by 47% to Bt632 billion during the first six months of 2013. In
addition, the large auto manufacturer in Rojana Industrial Park in Prachinburi province announced capacity expansion in the site. This anchor occupant will attract suppliers of the auto
manufacturer moving into the estate. The company’s profitability is expected to remain weak during the next several years because its expanded power plant capacity is not fully utilized. ROJNA
plans to spend about Bt2,000-Bt3,000 million for land acquisition and development in newly acquired estates and Bt2,600 million for 24-MW solar farm during 2013-2014. As a result, total debt is
expected to remain high and will improve from 2015 onwards.