TRIS Rating Co., Ltd. has assigned the ratings of “A” to the proposed issue of up to Bt1,000 million in senior debentures and the senior debentures worth Bt400 million (MBK229A) of MBK PLC (MBK). At the same time, TRIS Rating has affirmed the company and current issue ratings of MBK at “A”. The outlook remains “stable”. The proceeds from the new debenture issues will be used to refinance its existing debt, liquidity reserve, and for future investments. The ratings reflect the stable cash flows from MBK’s contract-based retail property business, a close relationship with the Thanachart Group, and a high level of financial flexibility from its sizable investment portfolio. These strengths are partially offset by an upcoming rise in its operating costs as a new leasehold contract for MBK Center takes effect in 2013. The “stable” outlook reflects the expectation that MBK will continue to receive reliable cash flows from its rental property. The company is expected to maintain the quality of its motorcycle loan portfolio through its stringent loan approval and collection procedures. With moderate amounts of capital expenditures planned for 2012-2013, the company is expected to maintain its current leverage level, as measured by the total debt to capitalization ratio.
TRIS Rating reported that MBK was established in 1974. Thanachart Capital PLC (TCAP) and other companies in the TCAP Group are MBK’s major shareholders, holding a 20% stake in total. MBK is currently engaged in many business segments: retail property for rent, hotels, golf courses, residential property development, rice, and financial services. MBK owns and operates the MBK Center, a well-known shopping center located on leasehold land close to the Siam Square shopping district in downtown Bangkok. Despite its diverse business portfolio, the company’s performance continues to be reliant on its two core properties, MBK Center and the Pathumwan Princess Hotel. In the first half of 2012, the two properties generated approximately 32% of MBK’s revenue and 53% of its cash flow.
TRIS Rating said, to mitigate business concentration risk, MBK has gradually expanded its retail property development business. The company has a 31% stake in Siam Piwat Co., Ltd., which owns and operates several shopping centers in the Siam Square area. Siam Piwat owns 100% of Siam Center (19,000 square meters (sq.m.)) and Siam Discovery Center (23,200 sq.m.) and has a 50% interest in Siam Paragon (186,010 sq.m.). In addition, a 50:50 joint venture (JV) between MBK and Siam Piwat renovated and reopened the Paradise Park (formerly Seri Center) shopping mall (90,177 sq.m.) in July 2010. In August 2011, MBK launched its first community mall on Rama IX road, The Nine Neighborhood Center, which has retail space and office space of 12,873 sq.m. and 8,979 sq.m., respectively. As of June 2012, MBK’s portfolio of retail property and office space totaled 205,251 sq.m. and 57,895 sq.m., respectively.
For the hotel business, MBK currently owns and operates six hotels in key tourism provinces of Thailand, with a total of 972 rooms. Due to strong demand in the tourism industry, the average occupancy rate (OR) of MBK’s properties was high at 69% in the first half of 2012. The average room rate increased by 3.3% to Bt2,940 per night in the first half of 2012. Thus, MBK’s average revenue per available room (RevPAR) increased from Bt1,914 per night in the first half of 2011 to Bt2,033 per night in the first half of 2012.
Apart from the commercial property business, MBK acquired T Leasing Co., Ltd. (TLS), a provider of motorcycle hire-purchase loans, in 2010. TLS’s outstanding motorcycle loans were Bt1,180 million as of June 2012. As a result of the severe flood in late 2011, the quality of MBK’s loan portfolio deteriorated. The ratio of non-performing loans (NPLs) to total loans rose from 4.2% as of September 2011 to 6.5% as of March 2012 but declined to 3.6% as of June 2012. MBK faces a challenge to continue to expand its loan portfolio while maintaining the quality of assets. MBK also offers mortgage loans. As of June 2012, the mortgage loan portfolio was worth Bt2,551 million, with a loan-to-value ratio of 45%.
For the fiscal year (FY) 2011/2012 (July 2011-June 2012), MBK’s revenue increased by 3% year-on-year (y-o-y) to Bt7,819 million. The operating profit margin increased from 30.0% in FY2010/2011 to 33.4% in FY2011/2012. The higher operating margin was mainly driven by the improvement in the hotels and rental property businesses. However, starting from April 2013, the company will incur higher lease payments for MBK Center. The payments will leap from Bt85 million per year to Bt695 million per year. The company’s profit margin is expected to decline if MBK is unable to pass through this significant cost increase to its tenants. The company plans to increase its rental rates to cope with the rise in its lease payment obligations. The rises in rental rates will help to improve its profit margin.
MBK’s funds from operations (FFOs) increased from Bt2,086 million in FY2010/2011 to Bt2,337 million in FY2011/2012. The level of debt declined from Bt9,206 million at the end of June 2011 to Bt7,173 million at the end of June 2012, following the debt repayments. The FFOs to total debt ratio improved from 22.7% in FY2010/2011 to 32.6% in FY2011/2012. The total debt to capitalization ratio decreased from 42.1% at the end of June 2011 to 33.7% as of June of 2012. The company’s liquidity position remained satisfactory. As of June 2012, the company had cash on hand of Bt999 million, while the value of its investment portfolio was Bt4,511 million, said TRIS Rating. — End.
Company Rating: Affirmed at A Issue Ratings: MBK137A: Bt3,000 million senior debentures due 2013 Affirmed at A MBK163A: Bt2,000 million senior debentures due 2016 Affirmed at A MBK188A: Bt300 million senior debentures due 2018 Affirmed at A MBK188B: Bt400 million senior debentures due 2018 Affirmed at A MBK227A: Bt500 million senior debentures due 2022 Affirmed at A MBK229A: Bt400 million senior debentures due 2022 A Up to Bt1,000 million senior debentures due within 2022 A Rating Outlook: Stable
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