TRIS Rating Assigns New Issue Rating of “MBK” at “A-”with “Stable” Outlook

TRIS Rating Co., Ltd. has assigned a rating to the proposed issue of up to Bt3,000 million in senior debentures of MBK PLC (MBK) at “A-”. At the same time, TRIS Rating has affirmed the company and current issue ratings of MBK at “A-”. The outlook remains “stable”. The ratings reflect MBK’s ownership of a well-known downtown shopping center, the stable cash flow from its contract-based retail space leasing business, a close relationship with Thanachart Bank PLC (TBANK), and strong financial flexibility from its sizable investment in marketable securities and its ability to raise funds through long-term lease arrangements with tenants. These strengths are partially offset by an upcoming rise in operating cost from a new leasehold contract which will take effect in 2013, as well as the company’s aggressive investment policy and expansion plans.

The “stable” outlook reflects the expectation that MBK will continue to receive stable cash flows from its retail property, the MBK Center, to offset the weak performance of its hotel business. Despite the substantial capital expenditures planned for 2010-2011, the company is expected to maintain the current level of leverage, as measured by the total debt to capitalization ratio, in the medium term.

TRIS Rating reported that MBK was founded in 1974. Thanachart Capital PLC (TCAP) and other companies in the TCAP Group are MBK’s major shareholders, holding a 20% stake in total as of May 2010. MBK currently owns and operates MBK Center, a well-known shopping center in downtown Bangkok. MBK is also engaged in the hotel, golf course, residential property development and rice milling businesses. MBK’s performance is heavily reliant on MBK Center despite the diverse portfolio of businesses. The company’s core properties, the MBK Center and the Pathumwan Princess Hotel, are located on leasehold land close to the Siam Square area in Bangkok. In recent years, the two properties have generated approximately 40% of MBK’s revenue and 75% of its cash flow. To mitigate business concentration risk, MBK has gradually expanded its retail property business. A 50% jointventure (JV) with Siam Piwat Co., Ltd. has completely renovated the Paradise Park (renamed from Seri Center) shopping mall, which is fully operated in July 2010. MBK is developing its first community mall on Rama IX road with a target to be opened by mid-2011. In addition, MBK acquired an 8,200 square meters office building and an adjacent seven-rai land plot for Bt639 million in June 2010.

TRIS Rating said, although the tourism industry in Thailand has been negatively affected by global economic conditions and domestic political unrest, MBK’s operations have held at an acceptable level. Revenue has been around Bt5,800 million for the last two fiscal years. In the first nine months of the 2009/2010 fiscal year (FY), revenue increased by 2% to Bt4,481 million. However, MBK’s profitability has been affected by the high raw material costs of the rice milling business and the slowdown in the tourism industry. The operating profit margin decreased from 36% in FY2008/2009 to 32% for the first nine months of FY2009/2010. Funds from operations (FFO) stayed at Bt1,700-Bt1,800 million for three consecutive fiscal years (FY2007-2009) but sharply increased to Bt3,290 million for the first nine months of FY2009/2010. The rise was the result of the Bt3,000 million raised through execution of long-term leases in MBK Center in late 2009. In the third quarter of FY2009/2010, MBK also realized gains on sales of investments in marketable securities amounting to Bt996 million. The FFO to total debt ratio then improved from 22.5% in FY2008/2009 to 42.6% (non-annualized) for the first nine months of FY2009/2010. The level of debt was maintained at approximately Bt7,800 million in June 2009 and March 2010, but the total debt to capitalization ratio decreased from 39.2% in June 2009 to 34.6% in March 2010. The proceeds from the new debentures will be used to repay debentures maturing in August 2010.

The prolonged and violent political unrest during March-May 2010 in Bangkok has chased away the foreign tourists since late March 2010. MBK was slightly affected from the political violence, as its major contributing assets, the MBK Center and the Pathumwan Princess Hotel, are located in Siam Square area. Siam Square is adjacent to the Ratchaprasong area, the center of the political protests. Daily customer traffic of the MBK Center dropped by approximately 15% year-on-year in April and May 2010. The occupancy of the hotel also dropped sharply during the turbulent period. However, MBK expects hotel operations to revive by the last quarter of 2010. Customer traffic at the MBK Center has continuously improved since June 2010. MBK divested more marketable securities worth Bt3,400 million and realized gains on sales for approximately Bt1,000 million in June 2010. The proceeds from the divestment helped strengthen its liquidity and are expected to be used for future expansion, said TRIS Rating. -- End

Company Rating: Affirmed at A- Issue Ratings: MBK108A: Bt3,000 million senior debentures due 2010 Affirmed at A- MBK117A: Bt2,000 million senior debentures due 2011 Affirmed at A- Up to Bt3,000 million senior debentures due 2013 A- 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. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.