Fitch Assigns First-Time #AA(tha)(EXP)# to Risland (Thailand)#s Guaranteed Debt

Stocks and Financial Services Press Releases Tuesday April 23, 2019 17:18
Bangkok--23 Apr--Fitch Ratings

Fitch Ratings (Thailand) Limited has assigned residential property developer Risland (Thailand) Company Limited's (RLT) proposed guaranteed debentures of up to THB3.5 billion an expected National Long-Term Rating of 'AA(tha)(EXP)'.

RLT will use the proceeds from the bond issuance for business development and to repay intercompany loans. The final rating is contingent upon the receipt of final documentation conforming to information already received.

KEY RATING DRIVERS

The rating on the proposed debentures reflects the credit enhancement provided to investors by the full, unconditional and irrevocable guarantee by RLT's parent, Country Garden Holdings Co. Ltd. (CGH, BBB-/Stable). The guarantee ranks at least pari passu with CGH's unsecured and unsubordinated obligations.

DERIVATION SUMMARY

The rating of RLT's proposed guaranteed debentures is based entirely on credit profile of the guarantor. CGH (BBB-/Stable). CGH is a leading homebuilder in China with one of the most well-diversified land banks among its peers, which helps it to sustain sales through business cycles. CGH has a significantly larger operating scale and geographic diversification of cash flows compared with peers in Thailand such as Thai Beverage Public Company Limited (ThaiBev, BBB-/AA(tha)/Negative), the market leader in spirits and beer. Thaibev's smaller scale is offset by its dominant market position in spirits in Thailand, while the Negative Outlook on its ratings reflects the challenges the company faces in the mid-term in reducing its leverage.

CGH has a stronger credit profile than Total Access Communication Public Company Limited (DTAC, BBB/AA(tha)/Stable), which is the third-largest mobile phone operator in Thailand. DTAC faces a major challenge to regain market share and stabilise earnings in the medium term due to intense price competition and its inferior network coverage. These risks are counterbalanced by its low leverage, which results in DTAC's standalone credit profile of 'aa-(tha)', while its final rating of 'AA(tha)' reflects a one-notch uplift due to moderate linkages with its parent, Telenor ASA of Norway.

RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to Positive Rating Action on the proposed guaranteed debentures:
  • if CGH's Long-Term Issuer Default Rating is upgraded.
Developments That May, Individually or Collectively, Lead to Negative Rating Action on the proposed guaranteed debentures:
  • if CGH's Long-Term Issuer Default Rating is downgraded.
For CGH's rating, the following sensitivities were outlined by Fitch in its Rating Action Commentary dated 2 April 2019:
Developments that May, Individually or Collectively, Lead to Positive Rating Action on CGH:
  • EBITDA margin above 20% for a sustained period (end-2018: 21%)
  • Net debt/adjusted inventory ratio below 30% for a sustained period (end-2018: 33%)
  • Positive CFO, net of investments in JVs and associates, for a sustained period
Developments that May, Individually or Collectively, Lead to Negative Rating Action on CGH: