TRIS Rating Assigns “BBB” Rating with “Stable” Outlook to Partially Guaranteed Debt of “PF”

TRIS Rating Co., Ltd. has affirmed the company rating of Property Perfect PLC (PF) at “BBB-” and has affirmed the ratings of PF’s existing senior secured debentures at “BBB” with “stable” outlook. At the same time, TRIS Rating has assigned the rating of “BBB” to PF’s proposed issue of up to Bt1,500 million in senior debentures, partially guaranteed by Siam City Bank PLC (SCIB), the bank rated by TRIS Rating at “A” with “stable” outlook. The ratings reflect PF’s proven track record in the residential housing market and accepted brand name in the middle- to high-priced segment. These strengths are partly offset by the weak profitability and cash flow when compared with its peers and the cyclical nature of the industry.

SCIB guarantees to pay up to Bt975 million or 65% of the amount of PF’s proposed debentures. PF will use the proceeds from the issuance of the new debentures to develop residential property projects and acquire land plots for future development.

The “stable” outlook reflects the expectation that PF will be able to sustain its operating performance during a period of gradual economic recovery. Profitability and liquidity are expected to improve continually over the next few years. Despite the huge investments needed to construct condominium projects, leverage should remain at an acceptable level of lower than 50%.

TRIS Rating reported that PF is one of the leading residential property developers in Thailand. The company was established in 1985 by Mr. Chainid Ngowsirimanee and was listed on the Stock Exchange of Thailand (SET) in 1993. After concluding a debt-equity swap as part of a debt restructuring plan, the creditors became PF’s major shareholders. As of May 2009, the three largest creditors, Japan Asia Group Ltd., MJL Intertrade Co., Ltd., and Natee International Law Office Co., Ltd., together held a combined 22.87% stake. PF offers a wide range of products including single detached houses (SDHs), duplex houses, townhouses, and condominiums. Its products target middle- to high-income customers with prices per unit ranging from Bt1.7 million to Bt20 million for housing units and from Bt1.2 million to Bt4 million for condominium units. Housing sales were the largest source of revenue during 2007 through the first nine months of 2009, constituting more than 72% of total revenue, while condominium sales accounted for the rest. The company’s competitive edge derives from its well-accepted brand name and large land holdings along future mass transit lines, especially in the Rattanathibet area. PF differentiates its residential projects by providing grand central facilities to homeowners. This feature has become one of the company’s key selling points.

TRIS Rating said, PF’s presales in 2009 reached Bt6,918 million, up from around Bt6,000 million per year during 2006-2007 and Bt6,354 million in 2008. The rise in presales was primarily supported by a 13% increase in housing presales to Bt5,755 million in 2009 from Bt5,075 million in 2008. However, during the first nine months of 2009, revenue weakened by 27% to Bt4,101 million from Bt5,622 million during the same period of 2008. The drop was the result of fewer transfers of finished units for the Metro Park Sathorn Phase1 and 2 projects than in 2008. Revenue from condominium sales was only Bt706 million in the first three quarters of 2009 compared with Bt1,668 million in the same period of 2008. Despite benefiting fully from the government tax incentive packages, the company’s profitability dropped as the adjusted operating profit margin declined to 11.4% in the first nine months of 2009 from 14.0% in 2008. Profitability remained lower than its peers. Cash flow protection deteriorated during the first three quarters of 2009 as the funds from operations (FFO) to total debt ratio weakened to 6.0% (non-annualized) from 19.4% in 2008. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio ranged from two to three times in 2008 and through the first nine months of 2009. As of September 2009, the total debt to capitalization ratio increased to 46.9% from 43.4% at the end of 2008 as there was more land acquisition for condominium projects in 2009.

The residential property market was volatile over the past year, reflecting the national political instability and the global financial crisis. Although it recovered in the second half of 2009, the market remained relatively slow and has become increasingly dominated by major developers. Government tax incentives that allowed homebuyers to get a personal income tax deduction of up to Bt300,000 for the purchase of a new residence expired in December 2009. Demand for residential property in 2010 will depend heavily on the pace of recovery in the economy and in consumer confidence. TRIS Rating expects to see the residential property demand in 2010 to be in line with demand in 2009. -- End

Company Rating: Affirmed at BBB- Issue Ratings: PF112A: Bt300 million senior secured debentures due 2011 Affirmed at BBB PF128A: Bt800 million senior secured debentures due 2012 Affirmed at BBB Up to Bt1,500 million senior partially guaranteed debentures due within 2013 BBB Rating Outlook: Stable Copyright 2010, 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.