Bangkok--Feb 6--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned an expected National Long-term rating of ‘BBB+(tha)’ to Property Perfect Public Company Limited’s (“PF”) THB450 million secured debentures with a maturity of two years, due February 2008.
The rating is based on the creditworthiness of PF and the credit enhancement from a mortgage of freehold land with an average value of THB708m, representing a value-to-loan ratio (“VLR”) of 157% (i.e. loan-to-value ratio (“LVR”) of 63.6%), as well as a 50% principal guarantee by Thai Military Bank Public Company Limited (“TMB”, rated ‘A(tha)’/Positive/‘F1(tha)’). The proceeds from the debentures will be used for land acquisition for future project development and partly for the working capital.
PF’s bondholders expect to receive payment of principal and interest firstly from PF. In the event PF fails to meet the obligation of payment, the bondholders should receive payment of principal and interest from TMB in a lump-sum of THB225m upon acceleration of payment. The partial guarantee from TMB should reduce the loss to investors when a default occurs. Investors should note however that the guarantor has not waived any defence it may have under the debentures (i.e. invalidity, illegality and unenforceability of the guarantee or debenture nor if there are changes to terms and conditions of the debentures without notification to the guarantor) although the likelihood of such a defence being used appears small. In addition, the guarantee provides that TMB will have subrogation rights against PF once it has paid out any amount in connection with the guarantee and that TMB’s claim will be competing with all other unsecured and unsubordinated debt classes of PF. While this could result in a lower recovery rate for the bondholders, the guarantor only has a second mortgage over the pledged security, which should mitigate the impact on the recovery rate.
The credit ratings of PF reflect the company’s strong brand recognition in Thailand’s single detached housing (“SDH”) market. Nevertheless, PF is exposed to operational risks including an industry-wide slowdown, rising interest rates, a slowdown in inventory turnover due to more intense competition, construction delays and rising construction material costs. PF’s liquidity and financial risks are also a concern given the non-recurring nature of project cash flows and high leverage.
PF’s net debt to EBITDA remained high at 8.0x at the end of the first nine months of 2005 (“9M05”) (2004; 8.2x and 2003; 4.4x), on the back of its project expansion, land acquisition and a dividend payout. Despite rising costs of construction materials, PF’s EBITDA increased by a strong 23% yoy to THB594m in 9M05, thanks to the improved sales performance (up 33% yoy). PF’s net debt to EBITDA ratio is likely to remain high for 2005/2006, although reduced land acquisition and project expansion, together with expected stronger EBITDA growth, should help improve leverage to a more moderate level in 2007.
The Negative Outlook for the issue reflects PF’s current Outlook. The Outlook is based on PF’s vulnerability to a further slowdown in the industry. In order to stabilise the rating Outlook, sustainable sales growth and improved leverage over the next year will be required.
CONTACT: Wasant Polcharoen, Lertchai Kochareonrattanakul, Vincent Milton, Tel: +662 655 4755.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
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