TRIS Rating Says: Asset Acquisition of NaiLert Park Project Has No Impact

On 28 September 2016, Bangkok Dusit Medical Services PLC (BDMS) announced that it plans to acquire the land and buildings in the NaiLert Park project, at a cost of Bt10,800 million. TRIS Rating views that the announcement by BDMS as neutral to BDMS’s “AA-” ratings. BDMS plans to renovate and develop the acquired land and buildings to be a holistic medical service center called “BDMS Wellness Clinic”. The budget for renovation and development is expected to be about Bt2,000 million. The transaction will be completed within the second quarter of 2017.

The total transaction value represents around 12.5% of BDMS’s assets, based on the company’s consolidated financial statements ending 30 June 2016. Given the company’s currently low level of leverage, the debt-to-capitalization ratio, after including the new debt incurred from this transaction, will stay at around 40%, lower than TRIS Rating's credit guidance level of 45% during the investment period. The debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio will increase from 1.7 times at the end of June 2016 to around 2.5 times, lower than the target of 3.25 stated in the current bond covenants.

TRIS Rating holds the view that the BDMS Wellness Clinic will complement BDMS’s existing private hospital business. The expected benefits of the project include the ability to expand healthcare operations and the ability to capture new opportunities in two areas where demand is increasing: preventive medicine and longevity and anti-aging. This project is in line with BDMS's strategy to become one of the world's leading providers of wellness services. The project also complements the government’s desire to promote the healthcare service industry as an engine for economic growth. However, a wellness clinic is a new business endeavor for BDMS. As a result, the new venture may take longer time than expected to ramp up and become profitable. Thus, BDMS’s operating margin (income before depreciation and amortization as a percentage of revenue) might be impacted over the next couple of years. The operating margin is expected to stay in a range of 21%-22%.

TRIS Rating currently assigns ratings of “AA-” to the company rating of BDMS and to the outstanding issue of senior unsecured debentures, along with a “stable” outlook.-- End

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TRIS Rating Says: Asset Acquisition of NaiLert Park Project Has No Impact on Ratings of “BDMS”