TRIS Rating affirms the company rating on Aqua Corporation PLC (AQUA) at ?BBB-? with a ?stable? outlook. The rating reflects the high level of recurring income AQUA earns from long-term warehouse rental contracts and the share of profit it receives from an affiliated company. However, AQUA?s strengths are offset by its small size of portfolio of rental properties and located only in limited areas.
AQUA recently announced its plan to divest all its shares in the out-of-home media business to PLAN B Media PLC (PLANB). The transaction value is THB2.88 billion. The company plans to use the proceeds of the divestment to repay existing debts, fund future investments, and use as working capital. In addition, AQUA also plans to purchase a 1.96% stake in PLANB, for THB 606.48 million. The share purchase is subject to the approval of shareholders in the General Meeting of Shareholders of PLANB scheduled in April 2022. After the completion of the transaction, AQUA will focus on its real estate business, and investments in printing and packaging, as well as energy businesses. In TRIS Rating?s view, the transaction will benefit AQUA by strengthening its capital structure and liquidity position.
We expect the divestiture of media business to result in AQUA?s total operating revenues dropping by 59% to THB337 million in 2022, with Its earnings before interest, taxes, depreciation and amortization (EBITDA) to stay at THB353 million. We expect the company?s total debt to capitalization ratio to stay at around 9%, and its adjusted debt to EBITDA ratio to stay below 4 times in 2022.
We assess AQUA to have adequate liquidity over the next 12 months. The company has outstanding debt of THB1.0 billion to be due over the next 12 months. The funds from operations (FFO) are projected to be THB233 million. We project the company to have cash on hand of THB1 billion at the end of 2022.
Most of AQUA?s debt is made up of secured bank loans. As of December 2021, the ratio of priority debt to total debt exceeded 50%, which implies a significant subordination risk for the company?s senior unsecured obligations, according to TRIS Rating?s ?Issue Rating Criteria?.
RATING OUTLOOK
The ?stable? outlook reflects our expectation that AQUA will earn from long-term warehouse rental contracts and the share of profit it receives from an affiliated company.
RATING SENSITIVITIES
A rating downgrade could happen if AQUA?s profitability or performance deteriorates materially. Any debt-funded expansion which would significantly weaken its balance sheet and cash-flow protection, would also lead to a rating downgrade scenario. In contrast, the rating could be upgraded if the company materially enlarges and stabilizes its cash generation while maintaining a strong balance sheet on a sustained basis.
COMPANY OVERVIEW
AQUA was established in 1994 as a provider of hire-purchase loans for electrical home appliances. The company was listed on the Stock Exchange of Thailand (SET) in September 2004. In 2007, MIDA Assets PLC (MIDA), led by the leosivikul family, became the company?s major shareholder. The family decided to terminate the hire purchase business.
As of March 2021, AQUA?s major shareholders comprised Mr. Pakorn Mongkoltada (holding 12.6% of the company?s shares), Mr. Kumpol Virathepsuporn (holding 6.9%), and Ms. Kanchanarat Wonghan (holding 5.1%).
AQUA has operated as an investment management company since 2007. In that year, AQUA bought 50% of AQUA Ad PLC (AQUA Ad), a provider of out-of-home media services. In 2010, AQUA acquired a 43.8% stake in EP. In 2011, AQUA bought all of the remaining shares in AQUA Ad. In 2014, AQUA expanded its investment portfolio to include businesses that generate recurring income. In 2015, it acquired Thai Consumer Distribution Center Co., Ltd. (TCDC) and Accomplish Way Holding Co., Ltd., which operate built-to-suit warehouses for rent. In 2016, AQUA developed a rehabilitation resort, and then leased the property to ?The Cabin ChiangMai? in order to earn rental income.
As of July 2019, AQUA had acquired a 100% stake in S. Thana Media Co., Ltd., which operates out-of-home media services in Thailand. The total acquisition cost was THB380 million.
In November 2020, AQUA terminated the lease agreement with The Cabin and returned all project areas to this company.
In January 2022, AQUA recently announced that it had approved plans to divest all of its ordinary shares in the out of home media business, comprising of Aqua Ad co., ltd (AA) and M.I.S. Media co., ltd (MIS), together with ordinary shares of Boardway Media co., ltd (BWM) and S. Thana Media co., ltd (STN) to PLAN B Media PLC (PLANB).
The transaction is worth THB2.88 billion. The company plans to use the proceeds of the divestment to repay existing debts, as a reserve for future investments, and to fund its working capital needs. In addition, AQUA also plans to purchase 1.96% stake in PLANB, totaling of THB606.48 million. The share purchase is subject to the approval of the General Meeting of shareholders of PLANB in April. After the completion of the transaction, AQUA remains focus on the real estate investment business, printing and packaging business, and energy business.
RELATED CRITERIA
- Key Financial Ratio and Adjustments for Corporate Issuers, 11 January 2022
- Issue Rating Criteria, 15 June 2021
- Rating Methodology ? Corporate, 26 July 2019
Aqua Corporation PLC (AQUA)
Company Rating: BBB-
Rating Outlook: Stable