TRIS Rating has assigned the rating of “BB” to the proposed issue of up to Bt1,000 million in unsecured subordinated perpetual debentures (hybrid debentures) of Ananda Development PLC (ANAN). At the same time, TRIS Rating has affirmed the company rating and the ratings of the senior unsecured debentures of ANAN at “BBB-”. The outlook remains “positive”.
The rating of ANAN’s hybrid debentures is two notches below the senior unsecured debenture ratings of ANAN. This rating differential reflects the subordinated nature of the hybrid debentures and the option of the issuer to defer coupons on a cumulative basis. The payment obligation of the proposed hybrid debentures ranks behind ANAN’s senior debt obligations in terms of the priority of claims. If the interest deferral provision is exercised, ANAN will be prohibited from making any dividend payments to any class of equity holder.
TRIS Rating considers the proposed hybrid debentures to have an “intermediate” equity content. Thus, TRIS Rating would treat 50% of the principal amount of the debentures as equity and the other 50% as debt when calculating ANAN’s financial ratios. The “intermediate” equity content will fall to “minimal” (or 0% equity treatment for this issue) at the end of the fifth year from the issuance date. This is because, five years after issuance, the remaining effective tenor of the issue will be less than 20 years. According to TRIS Rating’s criteria, the effective maturity date of the issue will be defined as the date when there is a material step-up (equal to or more than 100 basic points) of the coupon rate. In this case, the interest spread of the hybrid debentures will step up by 100 bps at the end of the 25th year.
The “positive” outlook reflects the expectation that ANAN’s revenue base will range from Bt10,000-Bt13,000 million per annum over the next three years. The operating margin is expected to stay at around 15%. ANAN’s ratings could be upgraded, should its financial performance improve as expected while its debt to capitalization ratio (including proportionate debt from JV) is kept at below 66% or the interest-bearing debt to equity ratio stays below 2 times. On the contrary, the outlook could be revised downward if ANAN’s financial leverage is significantly higher than expected, either from its aggressive expansion or lower operating performance than expected.
ANAN also has a call option to redeem the issue after the five-year non-call period ends or if certain redemption events occur. Except for certain events as specified in the terms and conditions (e.g. changes in the tax and accounting treatments of hybrid securities or a change in the rating agency criteria used to assess the equity content of the issue), ANAN intends to replace redeemed or repurchased hybrid debentures with an instrument that has similar or higher equity content.
The ratings of ANAN and its existing issues continue to reflect the company’s strong competitive position in the condominium segment and its proven track record in the residential property market. The strengths are partially offset by the company’s high concentration in the condominium segment and expected higher financial leverage. The ratings also take into consideration the cyclical and competitive nature of the property development industry, plus concerns over the slower-than-expected growth in the domestic economy.
ANAN is engaged in development and sale of residential property, mainly condominium projects located near mass transit train stations in Bangkok. The company was established in 1999 by the Ruangkritya family, and then listed on the Stock Exchange of Thailand (SET) in December 2012. As of April 2015, Mr. Chanond Ruangkritya was ANAN’s largest shareholder, holding 50.1% of the shares.
As of March 2015, ANAN had 28 existing projects, consisting of 16 condominium projects and 12 low-rise housing projects, with total remaining value of around Bt18,000 million available for sale. ANAN is developing four condominium projects under the joint venture (JV) with SEA Investment Five Pte. Ltd. (SEAI5), a subsidiary of Mitsui Fudosan Group. The company had a backlog worth Bt35,000 million (with Bt22,000 million of the backlog from JV projects). The units in the backlog will be transferred to customers during the remainder of 2015 through 2017. Presales reached a record high of Bt20,361 million in 2013, before decreasing by 15% year-on-year (y-o-y) to Bt17,311 million in 2014. Presales during the first quarter of 2015 sharply increased to Bt8,315 million. ANAN’s total revenue in 2014 was Bt10,328 million, a 13% y-o-y growth. Revenue during the first three months of 2015 declined by 25% y-o-y to Bt1,331 million. ANAN plans to deliver Bt6,000 million worth of units from its backlog during the rest of 2015. Under TRIS Rating’s base case scenario, ANAN’s total revenue is expected to range from Bt10,000-Bt13,000 million per annum over the next three years. Around 70% of the revenue will come from condominium projects, while 20% will come from housing projects.
ANAN’s operating margin, as measured by operating income before depreciation and amortization as a percentage of revenue, improved to 16% during 2012-2013 and 19% in 2014 as its condominium projects generated more profit margin and the impacts from acquiring Ananda Development Two Co., Ltd. (AD2) at high fair value decreased. The operating margin dropped to 13% during the first quarter of 2015 because less revenue was recognized in this quarter. Going forward, ANAN’s operating margin is expected to stay at around 15% over the next three years.
The debt to capitalization ratio (including proportionate debt from JV) was 55% as of December 2014 and 60% as of March 2015. TRIS Rating’s base case scenario assumes ANAN’s financial leverage over the next few years will rise from its business expansion plan to pursue the growth momentum. However, the debt to capitalization ratio should not exceed 66%, or the interest-bearing debt to equity ratio should be less than 2 times. ANAN’s liquidity profile is acceptable. Its senior unsecured debentures worth Bt2,395 million and Bt4,000 million will mature in 2016 and 2017, respectively. ANAN’s liquidity sources include Bt1,900 million in cash, Bt4,700 million in undrawn credit facilities as of March 2015, and expected funds from operations (FFO) of around Bt1,000-Bt2,000 million on average per year.
Company Rating: BBB- Issue Ratings: ANAN16OA: Bt2,395 million senior unsecured debentures due 2016 BBB- ANAN175A: Bt4,000 million senior unsecured debentures due 2017 BBB- Up to Bt1,000 million subordinated capital debentures BB Rating Outlook: Positive
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