Bangkok--17 May--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed Thailand’s Siam Future Development Public Company Limited’s (“SF”) National Long- and Short-term ratings at ‘BBB+(tha)’ and ‘F2(tha)’, respectively. At the same time, the agency affirmed SF’s outstanding senior unsecured debentures at ‘BBB+(tha)’. The Outlook is Stable.
The ratings reflects SF’s established local market position in the medium-scale open shopping centre business and its high-quality portfolio of shopping malls with continuing high average occupancy rate of more than 90% since inception. The ratings also take into account the expected cash flow growth generated from its recurring rental and service income, underpinned by the increasing number of projects in SF’s portfolio, the highly diversified tenant profile and the secured cash flow streams provided by long-term anchor tenants, which accounted for around 50% of its gross leasable area (“GLA”) in 2005. In addition, the ratings reflect the solid improvement in SF’s recurring revenue, evident in a 53% year-on-year (“yoy”) increase in rental and service revenue in 2005, largely due to the full-year operation of new projects launched in 2004, particularly J Avenue Thonglor, Piyarom Place and SF Major Cineplex Chachoengsao, and to a lesser extent, the recent opening of two new power centres at Petchkasem and Ekkamai in late 2005.
Fitch notes that credit concerns include SF’s relatively high level of financial leverage and its aggressive expansion plan through debt financing over the next few years, which if coupled with the delay of new projects to be launched in 2006 to 2007, could further increase its financial leverage. The agency also says that although the increasing number of lifestyle and entertainment centres in SF’s portfolio and the expected higher portion of short-term lease contracts should improve the company’s profit margin, these factors may also raise earnings volatility, particularly when the retail sector outlook weakens.
Persistent high oil prices, a prolonged period of political turmoil as well as rising interest rates are adversely affecting consumer confidence and the outlook for the retail sector.
In 2005, SF’s GLA rose 54% yoy to about 97,000 square metres (sqm) as a result of the recent launch of two new power centres at Ekkamai and Petchkasem. The company also plans to open Esplanade, a THB1.5 billion indoor shopping mall on Ratchadaphisek Road, and another two lifestyle centres at Chaengwattana and Paholyotin in 2006, followed by Avenue Pattaya in 2007. Altogether, the planned expansion is expected to double its GLA to around 189,000 sqm by end-2006.
Due to its aggressive expansion, SF’s adjusted net debt to last-twelve-month EBITDAR rose sharply to 5.6x in Q106 from 0.3x in 2004, whereas EBITDA/interest expenses declined substantially to 17x in Q106, compared with 771x in 2004, causing its financial flexibility to be tightened. The delayed opening of new projects initially scheduled in Q305, resulting in the postponement of projected revenue streams and upfront payments, further increased its financial leverage to a higher than expected level. Given that the company’s interest bearing debt/equity ratio at end-2005 approached the maximum limit of 1.5x specified in the financial covenants, SF is likely to be more conservative on its expansion plans and capital funding for new projects. This, together with the expected growth of EBITDAR, should see the company’s adjusted net debt/EBITDAR fall to around 3.0x to 3.5x over the next two years, assuming capex of around THB2.7bn between 2006 and 2007. Although SF reported a very low cash balance of THB7m at end-Q106, its undrawn committed banking facilities of THB645 million at end-March 2006 and the expected earnings contribution from new projects should support the company’s liquidity position.
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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