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Fitch Assigns WHA's New Debentures 'BBB+(tha)' Rating
August 22, 2016 / 4:46 AM / a year ago

Fitch Assigns WHA's New Debentures 'BBB+(tha)' Rating

(The following statement was released by the rating agency) BANGKOK, August 22 (Fitch) Fitch Ratings (Thailand) Limited has assigned a 'BBB+(tha)' National Long-Term Rating to WHA Corporation Public Company Limited's (WHA, BBB+(tha)/Negative) new senior unsecured debentures no. 9/2559. The bonds, totalling up to THB1.5bn, will have maturities as long as 2021. The debentures are rated at the same level as WHA's National Long-Term Rating, as they represent the company's direct, unconditional, unsecured and unsubordinated obligations. The proceeds of the debentures will be used to refinance some existing loans and fund working capital requirements. KEY RATING DRIVERS Deleveraging Depends on Asset Disposal: The Negative Outlook on WHA reflect uncertainty about the company's deleveraging plan. Most of the company's funds for repaying debt will come from asset disposals, which are subject to market conditions that affect the valuation and timing of the disposals. Fitch expects WHA's consolidated net-debt to fall by THB4.6bn in 2016. The debt reduction could be as much as THB11bn if WHA completes the spin-off of its utility business. High, but Decreasing Leverage: Fitch expects WHA's financial leverage to fall to a level commensurate with its ratings by 2018, mainly based on its asset disposal plan. WHA's FFO-adjusted leverage is likely to remain at 5.0x-6.0x in 2016-2018, although deleveraging could be accelerated if the company successfully spins off the utility business by end-2016. Integrated Business Model: The acquisition of Hemaraj Land and Development Plc (Hemaraj), a leading developer of industrial estates in Thailand, in 2015 strengthened WHA's market position in the industrial property business, supporting its leadership in the development of premium built-to-suit warehouses for lease and industrial estates in Thailand. WHA's revenues have more than doubled and the proportion of recurring-revenue/total-revenue should rise to 33%-34% over the medium-term, from 10% before the acquisition. Business Cycle Exposure: WHA's expansion into industrial-estate development has increased its vulnerability to land-sale volatility, cyclicality of property demand and higher competition. WHA's original business of developing premium built-to-suit warehouses for lease limited its exposure to property market cycles, because the warehouses were pre-leased with long-term contracts. Competition in this niche market is also low. Temporary Structural Subordination: WHA's senior unsecured debt could be structurally subordinated to the acquisition loans, which were taken by the subsidiary that directly holds shares in Hemaraj. However, most of the loans are due by mid-2017, making the structural subordination temporary and likely to be limited. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - 15%-20% increase in rental and service income in 2016, partly due to the first full-year consolidation of Hemaraj's performance, followed by 7%-8% growth in 2017 - 40% decrease in revenue from sales of industrial estate land in 2016, due to the faster recognition of revenue from land sold in 4Q15; revenue from industrial estate land sales to rise 60%-65% in 2017, returning to normal levels - sale of about THB10bn of investment properties to REITs in 2016 and about THB3bn in 2017 (excluding sales by JVs) - EBITDAR margin to increase to 40%-45% in 2016 due to substantial sales of high-margin investment properties by Hemaraj, then to decrease to 35%-40% in 2017-2018 - total capex, including project development costs and investment in affiliates, of about THB5bn per year in 2016-2017. RATING SENSITIVITIES Positive: Future developments that may, individually or collectively lead to revision of the Outlook to Stable include: - consolidated FFO-adjusted leverage below 5.5x on a sustained basis - evidence of progress of the asset disposal plan and debt repayments. Negative: Future developments that may, individually or collectively, lead to negative rating action include: - consolidated FFO-adjusted leverage above 5.5x on a sustained basis. Contacts: Primary Analyst Somruedee Chaiworarat Director +66 2108 0160 Fitch Ratings (Thailand) Limited Level 17, Park Ventures, 57 Wireless Road, Lumpini, Patumwan, Bangkok 10330 Secondary Analyst Nichaya Seamanontaprinya Associate Director +66 2108 0161 Committee Chairperson Vicky Melbourne Senior Director +612 8256 0325 Date of Relevant Rating Committee: 24 June 2016 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. Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available at Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015) here National Scale Ratings Criteria (pub. 30 Oct 2013) here Additional Disclosures Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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