TRIS Rating has assigned the rating of “A” to the proposed issue of up to Bt4,000 million in new senior unsecured debentures of Pruksa Real Estate PLC (PS). At the same time, TRIS Rating has affirmed the company and current senior unsecured debenture ratings of PS at “A” with “stable” outlook. The proceeds from the new debentures will be used to refinance the Bt3,000 million worth of debentures maturing in March 2016, and the rest will be used as working capital. PS’s ratings are not impacted by the company’s announcement that it will reorganize its corporate structure. In TRIS Rating’s view, both new and existing debenture holders will not be materially affected as a result of the reorganization.
The “stable” outlook reflects the expectation that PS will sustain its operating performance over the next three years. The company is expected to deliver a large number of the units in its backlog as scheduled. Total debt to capitalization ratio of PS and the holding company should stay at around 50%. PS’s future outlook depends on not only its performance but also the financial position of the group.
A successful diversification into new businesses will be positive for the group. On the contrary, the ratings of PS will be negatively affected, if the investment in new businesses of the holding company drags down the financial position of the group.
On 19 February 2016, the board of directors of PS approved the resolution to propose restructuring plan to PS’s shareholders. Under the restructuring plan, the company will establish a holding company. The holding company will make a tender offer for all securities of PS at the swap ratio of 1:1. After the completion of the tender offer, the holding company will become the major shareholder of PS and its securities will be listed on the Stock Exchange of Thailand (SET) in place of PS, whose securities will be delisted from the SET simultaneously. The new structure will provide more flexibility to the company in expanding into new businesses and facilitate alliance with strategic partners. However, the restructuring plan and the listing of the holding company’s common shares in place of the common shares of PS are subject to PS shareholders’ approval.
Under the reorganization, PS still focuses on the residential real estate for sale. The restructuring will not impact PS’s financial position and performance. All operating assets and key management team of PS remain intact. PS’s listing status will be terminated after PS sells all of its shares to the holding company. Thus, PS has to get the consent from the bondholders to get the waiver for this issue. When the restructuring can proceed as expected, the process should be completed by the end of 2016. Currently, the holding company is in the process of exploring new business opportunities, especially ones that can generate recurring income to the group. However, in order to maintain the ratings of PS, the investment in new business should not materially weaken the financial profile of the group.
PS’s ratings continue to reflect its leading position in the middle- to low-priced townhouse segment, proven track record in the middle- to low-income residential property market, cost competitiveness, and large backlog, which partly secures the company’s future revenue stream. The ratings also take into consideration the relatively high level of household debts nationwide coupled with the slowdown in the domestic economy which may impact the demand in the housing market in the short to medium term.
PS’s performance in 2015 is better than projected. The company’s presales in 2015 grew by 8% year-on-year (y-o-y) to Bt42,386 million. Presales from townhouses and single detached houses (SDHs) increased by 24% y-o-y and 1% y-o-y, respectively, while presales from condominiums dropped by 12% y-o-y. Total revenue in 2015 reached a record high of Bt51,240 million, a 20% y-o-y growth. PS’s revenue over the past three years ranked the first among those of all the property developers and hit a new record high for the industry. PS’s revenue in 2016 is partly secured by a backlog worth around Bt15,000 million. The remaining backlog worth Bt11,000 million is expected to be realized as revenue during 2017-2018.
PS’s operating profit margin, as measured by operating income before depreciation and amortization as a percentage of sales, ranged from 18%-21% during 2010-2015. The ratio remained higher than the industry average of around 15%. The debt to capitalization ratio improved to 45% in 2014 and 42% in 2015, from 47%-55% during 2010-2013. Despite a sluggish demand in the residential property market, TRIS Rating expects PS to be able to maintain the operating profit margin of at least 15% over the next three years. The debt to capitalization ratio of PS and the holding company should be kept at around 50%. PS’s liquidity remained acceptable as the ratio of funds from operations (FFO) to total debt was 26%-34% during 2013-2015. Its financial flexibility was enhanced by a sizable undrawn credit facility worth around Bt22,000 million as of December 2015.
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