Bangkok--Mar 7--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned National Long and Short-term Ratings of ‘BBB+(tha)’ and ‘F2(tha)’, respectively, to Siam Future Development Public Company Limited (“SF”). At the same time, the agency has also assigned ‘BBB+(tha)’ to SF’s THB1 billion senior unsecured debentures due in 2010. The Outlook on the ratings is Stable.
The ratings reflect the company’s strength as a medium-scale shopping centre developer with high occupancy across its malls. It also takes into account SF’s improving operating performance. In 2004, rental and service income was up 50% year-on-year, as SF opened its five new shopping centres and, to a lesser extent, rental rate increases. Average occupancy rate in 2004 also approached 100%.
The rating also factors in SF’s relatively strong operating cash flow, which is partly secured by long-term anchor tenants, accounting for 40% of its total revenue. Additionally, the company has diversified its anchor tenant portfolio over the past three years. Given its policy to develop projects via leasing rather than land acquisition, its investment costs are relatively low, although land rents and construction costs are increasing. SF may also benefit from operational synergies to develop entertainment centres with Major Cineplex Public Company Limited, Thailand’s leading cinema chain, as its major shareholder and one of its anchor tenants.
Finally, the rating also takes into account SF’s aggressive expansion plan, which will increase its leverage over the next three years. Although SF’s recent rise in the level of shorter term contracts should improve its profitability, this increases earnings volatility, particularly if the retail sector were to weaken. Slower economic growth, higher interest rates and steeper oil prices, as well as worsening violence in the South could also adversely affect consumer confidence and the fluid, highly competitive retail market.
In 2004, SF doubled its total rental area to 63,000 square metres, with the developments of five projects, including Ladprao Soi 120, SF Major Cineplex Center Chachoengsao, J Avenue Thonglor 15, Family Center Chaengwattana and Piyarom Place. In 2005, SF will launch at least two projects, Ekkamai Power Center and Petchkasem Power Center, and three additional projects, Ratchada Esplanade, Paholyothin and Pattaya Lifestyle Center in 2006. The planned expansions are expected to more than triple SF’s rental area by end-2006.
SF’s past expansions, which were funded mainly via lease prepayments and equity financing, have resulted in the company’s low debt levels, although this is expected to rise in the medium term as the company grows more rapidly. At end-2004, its consolidated debt stood at THB139m, mainly comprising rental deposits from its tenants. Net debt/EBITDA and lease adjusted net debt/EBITDAR ratio were 0.1x and 1.2x, respectively, while EBITDA/Interest expense ratio stood at 771.4x in 2004. Nonetheless, SF plans to issue up to THB1bn of debentures to finance its upcoming expansion plan. With SF’s debentures and its long-term loan facilities, net debt/EBITDA ratio is likely to rise to 1.9x in 2005 and remain around 1.0x-1.5x until 2008, assuming total additional capex of around THB1.6 billion during 2007/08, while EBITDA/Interest ratio is expected to decline to around 9.8x. The unsecured debt rating is based on the expected moderate increase in secured debt over time.
A credit update report on Siam Future Development Plc. is available on the agency’s subscription web site, www.fitchresearch.com.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries where the sovereign’s foreign and local currency ratings are below ‘AAA’. National ratings are not internationally comparable since the best relative risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. They are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. A rating Outlook indicates the direction a rating is likely to move over a one to two-year period.
CONTACT: Tanawat Roongtanapirom, CFA, Analyst, Corporates +662 655 4758; Lertchai Korcharoenrattanakul, Associate Director, Corporates Tel: +662 655 4760; Vincent Milton, Managing Director, Tel: +662 655 4759. End.