TRIS Rating Co., Ltd. has affirmed the company rating of King Power Duty Free Co., Ltd. (KPD) at “BBB+” with “stable” outlook. The rating reflects KPD’s dominant position in the duty free business in Thailand, a low degree of competition, and the capability and experience of its management team. The
rating also reflects the favorable long-term prospects for the Thai tourism industry. These strengths are partially offset by KPD’s relatively high leverage, which takes into account the amount of guarantees KPD provides to related companies and its moderate cash flow protection. The rating is also based on the expectation that KPD will not incur additional debt for expansion, nor provide financial support to related companies that have weaker financial positions than KPD.
The “stable” outlook reflects the expectation that KPD will maintain its dominant market position in
the duty free business. TRIS Rating expects that KPD will maintain its strong performance due to the good prospects of the Thai tourism industry. In addition, the outlook reflects the intention of the company to steadily reduce its debt level over the next 2-3 years.
TRIS Rating reported that KPD is a member of King Power Group, which is the dominant operator of duty free and tax free shops in Thailand. King Power Group’s shops are located in downtown Bangkok and
four international airports. KPD has been granted concessions from Airports of Thailand PLC (AOT) for
ten years (2006-2016) to operate duty free shops at Suvarnabhumi Airport and three other international airports. The products in KPD’s shops mainly consist of liquor and tobacco products, perfume, watches, cosmetics, fashion accessories, gourmet foods and chocolates.
TRIS Rating said, the duty free business is closely linked to the tourism industry. The industry’s long-term prospects are favorable because of the variety of attractive destinations and strong support from the government. However, unforeseeable negative events, such as the Severe Acute Respiratory Syndrome (SARS) outbreak and the tsunami, could cause temporary downturns. Competition in the duty free business in Thailand is considered low because KPD currently is the sole operator of duty free shops at airports in Thailand.
TRIS Rating said about KPD’s financial profile that it is considered moderate as its total debt to capitalization ratio increased to 72% at the end of 2005 from 69% in 2004. The increase in debt came primarily to finance the advance payment of the concession fee paid to AOT and the cost of constructing facilities at Suvarnabhumi Airport. The earnings before interest, tax, depreciation and amortization (EBITDA) to interest ratio was around four times and the funds from operations (FFO) to total debt ratio was considered weak at 11% in 2005. Although KPD’s sales and FFO increased substantially in 2005, its cash flow protection deteriorated because of high interest expense and the debt burden stemming from investments to enhance KPD’s future business.
In the review of KPD’s credit rating, TRIS Rating includes consideration of the current level of related transactions within the group, including inter-company lending. As of December 2005, KPD provided Bt1,125 million in loans to related companies. Moreover, KPD and its major shareholder, Mr. Vichai Raksriaksorn, guarantee the loans of an associated company that manages retail space in Suvarnabhumi Airport, as well as loans for a related company that is investing in a downtown duty free complex. Although KPD has stated it will not provide any additional support to related parties, TRIS Rating will closely monitor any additional support given to related companies because it may affect KPD’s rating. -- End
King Power Duty Free Co., Ltd. (KPD)
Company Rating: Affirmed at BBB+
Rating Outlook: Stable
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Copyright 2006, 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. 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.
rating also reflects the favorable long-term prospects for the Thai tourism industry. These strengths are partially offset by KPD’s relatively high leverage, which takes into account the amount of guarantees KPD provides to related companies and its moderate cash flow protection. The rating is also based on the expectation that KPD will not incur additional debt for expansion, nor provide financial support to related companies that have weaker financial positions than KPD.
The “stable” outlook reflects the expectation that KPD will maintain its dominant market position in
the duty free business. TRIS Rating expects that KPD will maintain its strong performance due to the good prospects of the Thai tourism industry. In addition, the outlook reflects the intention of the company to steadily reduce its debt level over the next 2-3 years.
TRIS Rating reported that KPD is a member of King Power Group, which is the dominant operator of duty free and tax free shops in Thailand. King Power Group’s shops are located in downtown Bangkok and
four international airports. KPD has been granted concessions from Airports of Thailand PLC (AOT) for
ten years (2006-2016) to operate duty free shops at Suvarnabhumi Airport and three other international airports. The products in KPD’s shops mainly consist of liquor and tobacco products, perfume, watches, cosmetics, fashion accessories, gourmet foods and chocolates.
TRIS Rating said, the duty free business is closely linked to the tourism industry. The industry’s long-term prospects are favorable because of the variety of attractive destinations and strong support from the government. However, unforeseeable negative events, such as the Severe Acute Respiratory Syndrome (SARS) outbreak and the tsunami, could cause temporary downturns. Competition in the duty free business in Thailand is considered low because KPD currently is the sole operator of duty free shops at airports in Thailand.
TRIS Rating said about KPD’s financial profile that it is considered moderate as its total debt to capitalization ratio increased to 72% at the end of 2005 from 69% in 2004. The increase in debt came primarily to finance the advance payment of the concession fee paid to AOT and the cost of constructing facilities at Suvarnabhumi Airport. The earnings before interest, tax, depreciation and amortization (EBITDA) to interest ratio was around four times and the funds from operations (FFO) to total debt ratio was considered weak at 11% in 2005. Although KPD’s sales and FFO increased substantially in 2005, its cash flow protection deteriorated because of high interest expense and the debt burden stemming from investments to enhance KPD’s future business.
In the review of KPD’s credit rating, TRIS Rating includes consideration of the current level of related transactions within the group, including inter-company lending. As of December 2005, KPD provided Bt1,125 million in loans to related companies. Moreover, KPD and its major shareholder, Mr. Vichai Raksriaksorn, guarantee the loans of an associated company that manages retail space in Suvarnabhumi Airport, as well as loans for a related company that is investing in a downtown duty free complex. Although KPD has stated it will not provide any additional support to related parties, TRIS Rating will closely monitor any additional support given to related companies because it may affect KPD’s rating. -- End
King Power Duty Free Co., Ltd. (KPD)
Company Rating: Affirmed at BBB+
Rating Outlook: Stable
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Copyright 2006, 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. 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.