TRIS Rating Assigns “A-” Rating to New Issue of “SPALI” and Affirms Company Rating at “BBB+” with “Stable” Outlook

TRIS Rating Co., Ltd. has assigned the rating to the proposed issues of up to Bt1,000 million in senior secured debentures of Supalai PLC (SPALI) at “A-”. At the same time, TRIS Rating has affirmed the company rating of SPALI at “BBB+” with “stable” outlook. The ratings reflect the long track record of SPALI in the residential property development industry, accepted brand name for single detached houses (SDH) and condominiums, proven ability to control operating costs and a sustainable financial profile despite the economic downturn. However, these factors are partially offset by the industry slowdown and the cyclical nature of the property development industry. The issue rating are enhanced one notch after incorporating 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 early 2009, the leverage level is expected to be maintained at no more than 50%, even while several condominium projects are still under construction. If the company could maintain its profitability and cash flow protection after the expiration of the government tax incentives, the credit ratings or outlook might be revised upward.

TRIS Rating reported that SPALI was established by the Tangmatitham family in 1989 and is one of the Thai leading property developers. As of August 2009, the Tangmatitham family remained the major shareholder, owning a 28% stake. As of July 2009, the company had more than 30 residential projects on hand, with a remaining sales value of around Bt13,000 million. The residential projects are a mix between condominiums (50%) and SDHs with townhouses (50%). Across the entire portfolio, the average price per unit was Bt2.4 million, reflecting the continued strategic focus on the middle income segment. The competitive edge of SPALI stems from the 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 property market.

TRIS Rating said, the operating performance of SPALI has remained satisfactory, with revenue increase by 43% to Bt4,630 million in the first half of 2009 from Bt3,230 million in the same period of 2008. Residential property sales are its 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 and benefit from increasing sales, the operating profit margin increased to 40% in the first half 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 increased from 12.8% (non annualized) during the first half of 2008 to 16.6% in the same period of 2009. Financial leverage also improved in mid-2009, after the company completed its treasury share program in early 2009 and transferred units in two major condominium projects in the first half of 2009. 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. In the first half of 2009, SPALI transferred 1,690 residential units worth more than Bt4,400 million to customers, an increase from around Bt3,000 million in the same period of 2008. As a result, the debt level decreased from around Bt5,000 million at the end of 2008 to Bt4,364 million in mid-2009. The debt to capitalization ratio decreased from 49% at the end of 2008 to nearly 41% at the end of June 2009.

TRIS Rating also said, the residential property market was volatile over the past year, reflecting national political instability and the global financial crisis. 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 Greater Bangkok is expected to track the overall economy, and will remain sluggish in 2009. To maintain credit quality, developers must prudently manage liquidity and preserve sufficient financial flexibility to meet obligations during an uncertain economic environment. — End

Company Rating: Affirmed at BBB+ Issue Rating: Up to Bt1,000 million senior secured debentures due 2013 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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