TRIS Rating affirms the company rating on Sansiri PLC (SIRI) and the ratings on SIRI?s existing senior unsecured debentures at ?BBB+?, with a ?stable? rating outlook. We also affirm the rating on its subordinated capital debentures (hybrid debentures) at ?BBB-?. At the same time, we assign the rating of ?BBB+? to SIRI?s proposed issue of up to THB6 billion in senior unsecured debentures. The proceeds from the new debentures will be used to refinance the debentures maturing in August 2021 (SIRI218A) and to fund business operation.
The ratings on SIRI and its debentures reflect the company?s diverse product portfolio, its strong competitive position in both landed property and condominium segments, and its relatively high financial leverage. The ratings also incorporate our concerns over the prolonged Coronavirus Disease 2019 (COVID-19) pandemic, which could put further pressure on the demand for residential property and the profitability of property developers.
The COVID-19 pandemic significantly affected SIRI?s operating performance and profitability in 2020. However, we view that SIRI will be less pressured to resort the aggressive price campaigns and no extra selling and administrative (SG&A) expenses this year. We forecast SIRI?s total operating revenue to reach THB29-THB30 billion per annum during 2021-2023. Revenue from residential property sales remains the key contributor, accounting for around 90% of total operating revenue. We expect that SIRI?s earnings before interest, tax, depreciation, and amortization (EBITDA) margin should recover to 20%-21% and net profit margin should revive to 7%-8% of total operating revenue over the forecast period.
Our base-case scenario includes the expectation that SIRI will be able to deliver the backlog as scheduled. SIRI?s backlog at the end of March 2021 stood at THB22.1 billion, comprising THB18.2 billion in backlog of its own projects and THB3.9 billion in backlog under joint ventures (JVs). The backlog worth THB10.6 billion is expected to be transferred to customers during the remainder of 2021, THB8 billion in 2022, THB3.3 billion in 2023, and THB0.2 billion in 2024.
As of March 2021, SIRI had 59 existing landed property projects and 22 condominium projects (including 7 condominium projects under JVs), with total unsold value of THB66.3 billion (including built and un-built units). Landed property projects constituted 60% of the total remaining value, while condominium projects accounted for the rest. SIRI?s well-diversified product portfolio and well-recognized brands give the company the flexibility to adjust its portfolio to meet market demand and retain market position amid intensifying competition.
We project SIRI?s debt to capitalization ratio to be maintained at 62%-64%. SIRI?s leverage may not drop much despite the company plans to launch more landed property projects than condominium projects. This is because the company plans to launch more of its own condominium projects than JV projects. In addition, SIRI will continue investing in its hotel management business operated by The Standard brand during 2021-2022. We forecast SIRI to fund land and construction costs for its industrial estate for rent project under JV with 70% debt and 30% equity throughout the development period. With the unfavorable environment in both domestic and global economy, we expect SIRI to be more cautious in its ongoing business expansion in residential property development and other supportive businesses. We expect SIRI to keep its debt to capitalization ratio below 66% and its funds from operations (FFO) to total debt ratio in the 5%-10% range.
We assess SIRI?s liquidity to be manageable over the next 12 months. As of March 2021, SIRI?s sources of funds consisted of THB2.7 billion in cash, THB0.7 billion in marketable securities, and THB16.3 billion of undrawn unconditional committed credit facilities from banks. SIRI had unencumbered land banks at book value of THB10.8 billion and remaining units in its own debt-free projects with a selling price of THB6 billion. FFO in 2021 is forecast to be THB3.2 billion. Debts due over the next 12 months will amount to THB24.3 billion, comprising THB1.3 billion short-term promissory notes (P/Ns), THB1.8 billion short-term bills of exchange (B/Es), THB6.1 billion long-term project loans, THB1.9 billion long-term P/N for land, THB13.1 billion debentures, and THB0.1 billion lease liability.
As of March 2021, SIRI had total debt of THB64.5 billion (per priority debt consideration), including THB19.1 billion of priority debt. SIRI?s priority debt was secured debt at the parent company and its subsidiaries. This means the ratio of priority debt to total debt was about 30%. As SIRI?s priority debt ratio is less than the threshold of 50% according to TRIS Rating?s ?Issue Ratings? criteria, we view that its unsecured creditors are not significantly disadvantaged compared to its priority debt holders.
RATING OUTLOOK
The ?stable? outlook reflects our expectation that SIRI will be able to deliver its operating performance and sustain its financial profile as targeted. We expect the company to keep its debt to capitalization ratio below 66% and its FFO to total debt ratio in the 5%-10% range over the forecast period. We also expect SIRI to retain its pretax return on permanent capital (ROPC) ratio above 5%.
RATING SENSITIVITIES
SIRI?s ratings and/or outlook could be revised downward should the prolonged COVID-19 pandemic evolve in a way that leads us to believe the company?s operating performance and/or financial profile are heading for a deeper deterioration than expected. On the other hand, a credit upside would materialize if SIRI?s financial profile improves to the levels attained by its peers of higher ratings, such that the debt to capitalization ratio stays below 55% and the FFO to total debt ratio increases to 10%-15% on a sustained basis.
RELATED CRITERIA
- Hybrid Securities Rating Criteria, 28 June 2021
- Issue Rating Criteria, 15 June 2021
- Rating Methodology ? Corporate, 26 July 2019
- Key Financial Ratios and Adjustments, 5 September 2018
Sansiri PLC (SIRI)
Company Rating: BBB+
Issue Ratings:
SIRI218A: THB5,000 million senior unsecured debentures due 2021 BBB+
SIRI21NA: THB2,000 million senior unsecured debentures due 2021 BBB+
SIRI222A: THB4,933.4 million senior unsecured debentures due 2022 BBB+ SIRI229A: THB2,000 million senior unsecured debentures due 2022 BBB+ SIRI229B: THB2,500 million senior unsecured debentures due 2022 BBB+ SIRI231A: THB4,000 million senior unsecured debentures due 2023 BBB+ SIRI236A: THB4,000 million senior unsecured debentures due 2023 BBB+ SIRI24OA: THB3,600 million senior unsecured debentures due 2024 BBB+ SIRI20PA: THB3,000 million subordinated capital debentures (hybrid debentures) BBB- Up to THB6,000 million senior unsecured debentures due within 3 years 6 months BBB+ Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2098-3000/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2021, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution, or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited, without the prior written permission of TRIS Rating Co., Ltd. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient?s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.