TRIS Rating Affirms Rating of “SPALI” at “BBB+” and Issue Rating at “A-”With “Stable” Outlook

TRIS Rating Co., Ltd. has affirmed the company rating of Supalai PLC (SPALI) at “BBB+” and has affirmed the rating of SPALI’s senior secured debentures at “A-”. The outlook remains “stable”. The ratings reflect SPALI’s long track record in the residential property development industry, its accepted brand name for single detached houses (SDHs) and condominiums, the proven ability to control operating costs and a sustainable financial profile despite the economic downturn. However, these factors are partially offset by the slowdown of the industry and the cyclical nature of the property development market. The issue rating incorporates the value of Supalai Grand Tower, which is pledged as collateral at 1.7 times the value of the outstanding debentures throughout their lives.

The “stable” outlook reflects the expectation that SPALI will be able to develop and transfer its condominium projects as planned. After the completion of the treasury stock program in February 2009, the leverage level is expected to be maintained at no more than 50%, even while several condominium projects are still under construction.

TRIS Rating reported that SPALI was established by the Tangmatitham family in 1989 and is one of Thailand’s leading property developers. As of April 2009, the Tangmatitham family remained the major shareholder, owning a 28% stake. As of March 2009, the company had more than 30 residential projects on hand, with a remaining sales value of around Bt14,000 million. The residential property portfolio comprised condominium (50%) plus SDH and townhouse (50%) projects. Across the entire portfolio, the average price per unit was Bt2.3 million, reflecting the continued strategic focus on the middle income segment. SPALI’s competitive edge stems from its ability to control operating costs, so as to offer housing units at competitive prices in a variety of locations and its accepted brand name recognition in the residential market.

TRIS Rating said about the operating performance of SPALI in recent years that it had remained satisfactory, with revenue almost doubling to Bt6,170 million in 2008 from Bt3,441 million in 2005. Residential property sales are SPALI’s major source of revenue. Office space rentals and hotels still contribute only a small proportion of total revenue. As a result of government tax incentives, the operating profit margin increased to 39% in the first quarter of 2009, from 31% in the same period of 2008. The pre-tax return on permanent capital stayed at around 20% in 2007-2008 and was 28% (annualized) in the first three months of 2009. Despite its improved income statement, financial leverage increased at the end of 2008, as the company incurred more debt to finance its project construction and bought back its common shares under a treasury stock program. Through February 2009, SPALI had spent Bt300 million to buy 134 million shares (or 7.8% of the total outstanding shares) with the condition to resell to the market or cancel those treasury shares within three years. As a result, the debt to capitalization ratio increased from 43% at the end of 2007 to nearly 50% at the end of 2008. However, the ratio slightly decreased to 45% in March 2009.

TRIS Rating said, the residential property market was volatile over the past year, reflecting the national political and global financial crises. Residential property demand contracted during late 2008 as a number of negative factors simultaneously hit the market. The civil disturbances in mid-April 2009, which led to the declaration of an emergency decree, will cause the economy to slow down much more than earlier expectation and will negatively impact demand. The less stable the political climate in Thailand, the more likely that demand for residential property will be sluggish. Despite the government tax incentives, which allow a new house transaction of up to Bt300,000 to be deducted from personal income tax, the residential property market in the Greater Bangkok is expected to track the overall economy, and contract in 2009. To maintain credit quality, developers must prudently manage liquidity and preserve sufficient financial flexibility to meet obligations during a slowing economy. — End

Company Rating: Affirmed at BBB+ Issue Rating: SPLI099A: Bt1,000 million senior secured debentures due 2009 Affirmed at A- Rating Outlook: Stable Copyright 2009, 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.

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