TRIS Rating sees positive implications for both LH and KH after LH sold its KH shares
to BH. However, the improving capital structure of LH remains consistent with its current
ratings considering its weakened financial profile and market challenges. KH’s rating is
also unchanged given the timing required to unlock synergies.
TRIS Rating Co., Ltd.’s press release followed the announcement by Land & Houses PLC
(LH) on 18 March 2011 that the company sold 24.99% of its stake in Bangkok Chain Hospital
PLC (KH) to Bumrungrad Hospital PLC (BH) for a total of Bt3.5 billion. After the
transaction, BH has become the second largest shareholder in KH, following the Harnphanich
family, which holds approximately 47% of KH’s total shares.
TRIS Rating views the deal in terms of credit implications will be favorably
beneficial for both LH and KH. Cash receipt from the transaction will allow LH to partially
relieve leverage pressure on its balance sheet. Since the second half of 2010, LH had
increased its debt financing to pay for the “Terminal 21” project, a Bt6-billion retail and
service apartment complex, for equity investment in LH Financial Group PLC (LHFG), and for
new housing land plots. LH will now have a greater financial flexibility to weather
challenges from the housing market dynamic, though the company’s higher leverage level in
2010 offsets the positive effects.
As for KH, TRIS Rating believes that the transaction gives the company an opportunity
to form a strategic collaboration with BH in certain cost saving dimensions. KH could also
capitalize on BH’s brand equity and expertise in penetrating the medium- to high-end market
segment. KH plans to open The World Medical Center, its first hospital targeting cash
patients, in early 2012. Nonetheless, TRIS Rating remains cautious that it will likely take
some times before the synergies could be materialized evidently on the KH’s bottom line.
Thus, KH’s current credit rating is still consistent with its medium-term business and
financial profiles.
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