TRIS Rating has affirmed the company rating of Rojana Industrial Park PLC (ROJNA) at “BBB+” with “stable” outlook. The rating reflects ROJNA’s long track record in the industrial property in Thailand, the reliable stream of income it receives from electricity sales, and the support from its major shareholders and Japanese partner. The rating also takes into consideration ROJNA’s attempts to diversify geographically and increase the recurring cash flows via additional investment in rental property business. The rating is partially constrained by the volatile nature of the industrial property market and ROJNA’s relatively high leverage.
The “stable” outlook reflects the expectation that ROJNA will maintain its market position in the industrial property development industry. The cash flows from the power segment are expected to counterbalance the fluctuations in industrial land sales. The rating upside will arise if the company makes significant, sustained improvements in cash flow and debt serviceability. In contrast, the rating and/or outlook could be revised downward if the company undertakes any sizeable debt-financed investments which will further weaken its balance sheet and cash flow protection.
ROJNA is one of the leading industrial property developers in Thailand, established in 1988 by the Vinichbutr family and the Sumitomo Group. In addition to selling industrial property and providing utility services, ROJNA owns and operates gas-fired power plants producing 415 megawatt (MW) of electricity and owns a 24-MW solar farm located in Rojana Industrial Park in Ayudhya province. Since 2012, ROJNA has expanded its industrial estate portfolio to eastern Thailand. The company owns and operates four industrial parks in Ayudhya, Rayong, and Pranchinburi provinces and is developing two more industrial estates in Chonburi province. As a part of efforts to increase recurring income, ROJNA increased its equity stake in TICON Industrial Connection PLC (TICON), a leader in renting industrial properties in Thailand, from 20.6% to 43.6% with an additional investment of about Bt5,300 million in late 2014. ROJNA began to consolidate TICON’s financial statements onto its own financial statements in January 2015.
After the consolidation in 2015, power business contributed approximately 40% of total funds from operations (FFO), TICON contributed 40%, and the remainder mainly came from industrial property sales. Industrial properties made up only 20% in 2015 compared with 37%-63% in the pre-flood period during 2008-2010.
The economic slowdown cut demand for industrial land nationwide during 2014-2015. ROJNA sold only 94 rai of land in 2015, compared with 300-700 rai per year during 2013-2014. However, land sales rebounded in 2016. ROJNA sold 364 rai in the first nine months of 2016. The rise was mainly driven by demand from a power-related company. More than 70% of industrial land sales has come from its new industrial estates in eastern Thailand. Land sales in the new estates partly alleviated the sluggish sales at the Ayudhya Industrial Estate, its main location. As of June 2016, ROJNA had 7,334 rai of land available for sale. About 41% of the remaining salable land was located in Ayudhya, 27% was in Chonburi, 16% was located in Prachinburi, and the remainder was in Rayong.
ROJNA holds a 41% stake in Rojana Power Co., Ltd. (Rojana Power), which is located in Rojana Industrial Park in Ayudhya province. Of a total capacity of 415 MW of electricity, 180 MW has been contracted to Electricity Generating Authority of Thailand (EGAT) through a Power Purchase Agreement (PPA) under the term of the Small Power Producer (SPP) scheme. The remaining amount of capacity is used to produce electricity for industrial customers in the ROJNA’s industrial estate in Ayudhya. After the completion of repairs and equipment refurbishments in 2013, ROJNA’s power sales have increased gradually. In 2015, ROJNA sold 2,530 gigawatt hours (GWh) of power, a 13.8% rise from 2014. The increase came because the volumes sold to electricity authorities and industrial users both increased. During the first half of 2016, the volume of electricity sold was 1,202 GWh, a decrease of 2.6% over the same period of the prior year. The drop is due to a reduction in capacity. Some equipment was moved to new power plant and some gas turbines encountered unplanned shutdown in early 2016. The volume sold to electricity authorities declined by 15% year-on-year (y-o-y) to 703 GWh in the first six months of 2016. However, the volume sold to industrial customers surged by 24% y-o-y to 499 GWh, which is close to the level ROJNA achieved before the 2011 flood crisis. Including the power production from solar, earnings before interest, tax, depreciation, and amortization (EBITDA) of power business in the first half of 2016 was Bt1,028 million, from Bt995 million in the same period of 2015.
ROJNA’s financial performance softened in the first half of 2016. Revenue was Bt5,392 million, falling from Bt7,479 million in the same period of 2015. The drop was mainly due to a drop in sales of industrial land. ROJNA transferred only 177 rai of land, compared with 714 rai over the same period of 2015. As a result of less revenue from high margin land sales, ROJNA’s operating margin slipped from 30.7% in the first half of 2015 to 29.2%. EBITDA also decreased, sliding to Bt1,869 million, from Bt2,583 million during the same period of 2015. If stripping out TICON’s EBITDA, ROJNA’s EBITDA was Bt1,217 million in the first half of 2016, compared with Bt2,040 million in the same period of 2015. About 85% of ROJNA’s EBITDA came from power business in the first half of 2016.
ROJNA’s leverage remained high. Total debt jumped from Bt40,555 million in 2014 to Bt46,040 million at the end of June 2016. Total debt to capitalization rose to 64.9% as of June 2016 from 62.8% as of December 2014 because of TICON’s debt. Excluding TICON’s debt, ROJNA’s total debt was relatively flat at Bt23,883 million as of June 2016, compared with Bt23,326 million in 2014. Even though ROJNA continued its extensive investments for diversification in 2014-2015, it has increased paid up capital about Bt3,000 million during 2014-2015. Going forward, leverage is expected to remain high as ROJNA and TICON expand. ROJNA plans to spend approximately Bt8,000 million in capital during 2016-2018. The capital expenditures included funds for a 110-MW gas-fired power plant under the SPP scheme, land acquisition and development costs for new industrial estates, and funds to expand a water plant. TICON will spend about Bt2,600 million per year to develop new rentable factory space and warehouse space.
On 7 October 2016, TICON’s board of directors approved a Bt13,230 million capital increase through a private placement. The private placement comprises 735 million newly-issued shares of TICON sold to Fraser Property Holding Thailand Ltd. (FPHT) at an offering price of Bt18 apiece. The private placement is subject to shareholder approval at the upcoming extraordinary general meeting (EGM) on 19 December 2016. If the private placement is successful, ROJNA’s equity stake in TICON will be diluted from 43.6% to 26.1%. ROJNA is expected to discontinue the consolidation of TICON’s financial statements onto its own financial statements. The financial profile of ROJNA without consolidation of TICON is projected to be insignificantly different from the current level. Debt to capitalization is projected to be about 60%. The EBITDA interest coverage ratio is forecasted to hover around 2-3. times and FFO to total debt will be in the range of 8%-10%.
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