TRIS Rating Affirms Company and Issue Ratings of “CK” at “BBB+/Stable”

TRIS Rating Co., Ltd. has affirmed the company and issue ratings of CH. Karnchang PLC (CK) at “BBB+” with “stable” outlook. The ratings reflect CK’s leading position in Thailand’s engineering and construction (E&C) industry, proven records in undertaking government infrastructure and specialized projects, and an ability to generate recurring income from concession investments. The ratings are partially offset by high backlog concentration, high financial leverage due to concession investments, the inherent risk of fixed unit price contracts, and downward pressure on profit margins as a result of a sluggish construction market.

The “stable” outlook reflects the expectation that CK will maintain its market position and pursue a growth strategy through selective investments in good quality concessions so as not to raise the financial leverage beyond the current level.

TRIS Rating reported that CK is one of the top three construction companies in Thailand. The company’s construction experience encompasses a broad array of construction activities, ranging from general civil work to highly sophisticated projects. These diverse experiences, together with a strong relationship with leading foreign contractors, help enhance the company’s business profile. Revenue from construction grew rapidly during the past three years, rising from Bt6,852 million in 2004 to Bt13,440 million in 2007. However, operating margins during the same period were squeezed from 16.5% to 4.2% due to higher competition and rising construction material costs. As of August 2008, CK’s backlog was Bt17,594 million, with around 53% concentrated in the Nam Ngum II dam project.

TRIS Rating said, CK’s concessions cover several infrastructure assets, including expressways, underground mass transit, tap water, and electricity. As of June 2008, the investments included a 16.5% stake in Bangkok Expressway PLC (BECL), a 24.6% share of Bangkok Metro PLC (BMCL), a 38.0% holding in South East Asia Energy Co., Ltd. (SEAN), and holding 35.3% of Thai Tap Water Supply PLC (TTW), which also held 98.0% of Pathum Thani Water Co., Ltd. (PTW). Most of CK’s concession investments are funded by debt, pushing the leverage level higher over the past three years. BECL and TTW have already contributed dividends and equity income; BMCL still experiences losses. The Nam Ngum II project undertaken by SEAN is in the construction phase and is expected to generate income no later than 2011.

CK’s financial profile is lower than expectation, reflecting its high debt level despite an improvement in operating margins in the first half of 2008. The company’s financial leverage is considered higher relative to its current rating category at BBB+. Liquidity remains acceptable, partly enhanced by a large holding of marketable securities. TRIS Rating remains concerned over CK’s future financial commitments which will likely constrain the company from making meaningful reductions in the debt level over the medium term. A continuing rise in leverage will likely have negative implications for financial flexibility and ultimately the credit rating, said TRIS Rating. -- End

Company Rating: Affirmed at BBB+ Issue Ratings: CK08OB: Bt1,090 million senior debentures due 2008 Affirmed at BBB+ CK099A: Bt2,000 million senior debentures due 2009 Affirmed at BBB+ CK09OA: Bt120 million senior debentures due 2009 Affirmed at BBB+ CK09OB: Bt880 million senior debentures due 2009 Affirmed at BBB+ CK102A: Bt1,100 million senior debentures due 2010 Affirmed at BBB+ CK107A: Bt2,000 million senior debentures due 2010 Affirmed at BBB+ CK114A: Bt2,000 million senior debentures due 2011 Affirmed at BBB+ Rating Outlook: Stable Copyright 2008, 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 inform

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