TRIS Rating has assigned the rating of “BBB-” to the proposed issue of up to Bt1,500 million in senior unsecured debentures of Noble Development PLC (NOBLE). At the same time, TRIS Rating has affirmed the company rating of NOBLE at “BBB” and has also affirmed the ratings of NOBLE’s senior unsecured debentures at “BBB-”. The outlook remains “negative”. The proceeds from the new debentures will be used to repay debentures maturing in July 2016.
The ratings reflect NOBLE’s well-accepted brand name in the middle- to high-end segment of the condominium market, as well as its product differentiation strategy and its large backlog which partly secures its future revenue stream. These strengths are partially offset by NOBLE’s weak financial profile and its business concentration risk. Currently, NOBLE has a huge investment in a single large condominium project, Noble Ploenchit. The Noble Ploenchit project is valued at Bt18,000 million or 34% of NOBLE’s total project portfolio. However, this project will be ready for transfer in late 2016. The ratings are also constrained by the relatively high level of household debts nationwide, coupled with the current slowdown in the domestic economy, which may impact the demand in the residential property market in the short to medium term.
The “negative” outlook reflects NOBLE’s lower-than-expected operating performance and its relatively high financial leverage. The ratings could be downgraded if the company could not deliver its large backlog as scheduled, causing its operating performance and financial position to decline below expectations. The outlook could be revised back to “stable” should NOBLE’s operating performance improve and if the debt to capitalization ratio does not exceed 65% from 2017 onwards. The credit upside is unlikely in the near term.
NOBLE is a medium-sized property developer in Thailand. The company was established in 1991 and listed on the Stock Exchange of Thailand (SET) in 1996. NOBLE primarily develops condominium projects, with selling prices ranging from Bt120,000 to Bt230,000 per square metre (sq.m.). NOBLE also offers other types of residential products including single detached houses (SDH), townhouses, and land plots. The company offers unique designs for each of its product types. As of March 2016, NOBLE had 16 active projects. Condominium projects comprised 85% of the value of its project portfolio, while the rest was low-rise housing projects. The value of the remaining unsold units (including built and un-built units) was Bt18,000 million. The total backlog was valued at Bt22,000 million. Around half of the backlog comes from the Noble Ploenchit project.
NOBLE’s presales in 2015 declined by 48% year-on-year (y-o-y) to Bt2,652 million. Presales during the first quarter of 2016 improved to Bt1,684 million. Revenue in 2015 and in the first three months of 2016 slashed by 84% y-o-y and 51% y-o-y, respectively. A significant drop in revenue came because the company did not complete any condominium projects during 2015 through the first half of 2016 and fewer completed residential units were transferred to customers. As a result, NOBLE’s performance in 2016 will hinge on its ability to deliver large backlog in the Noble Ploenchit project. Going forward, revenue during the next three years is expected to be at least Bt5,000 million per annum, supported by the huge backlog.
NOBLE’s gross profit margin decreased to 36% of total revenue during the first quarter of 2016, from 38%-40% during the past five years. The operating profit margin (as measured by operating income before depreciation and amortization as a percentage of sales) declined to -114% in 2015 and -374% during the first three months of 2016. The operating profit margin showed a negative figure because of lower revenue and high selling, general and administration (SG&A) expenses. Over the next three years, NOBLE’s operating profit margin is expected to recover to at least 25% of total revenue once large amount of backlog will be recognized from late 2016 onwards.
Total debt was Bt15,753 million as of March 2016, up from Bt14,209 million as of December 2015 and Bt11,417 million as of December 2014. The debt to capitalization ratio was relatively high at 79% as of December 2015 and 81% as of March 2016. The net interest-bearing debt to equity ratio was 3.4 times at the end of 2015 and 3.7 times at the end of March 2016. However, NOBLE received approval from its bondholders to waive the financial covenant during 2015 and 2016. NOBLE’s financial leverage is expected to improve once the company starts to transfer the finished units in the Noble Ploenchit project in the second half of 2016. Therefore, from the beginning of 2017 onwards NOBLE’s debt to capitalization ratio must stay below 65% in order to satisfy the current credit ratings.
Due to the rise in financial leverage, NOBLE’s funds from operations (FFO) to total debt ratio has decreased continuously. The ratio was -3.6% in 2015 and -3.5% (annualized with trailing 12 months) during the first three months of 2016, down from 1.7% in 2014 and 4% in 2013. NOBLE’s liquidity is still tight. The company’s financial flexibility as of March 2016 consisted of cash on hand of Bt2,298 million and undrawn unconditional project loans of Bt3,867 million. NOBLE also required customers to make down payments of 15%-30% of the selling price. The company has Bt7,975 million in debt due in the next 12 months, which 70% of it is project loans.
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