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 financial guarantees KPD provides to related companies, and an unresolved dispute with Airports of Thailand PLC (AOT). The rating is also based on the expectation that KPD will not incur additional indebtedness from either its own debt or a contingent liability which will further weaken its financial position.
The “stable” outlook reflects KPD’s improved liquidity, sufficient cash flow protection, and the court order to allow KPD to continue to operate during the legal process. The rating of KPD could be revised if the company can settle the dispute with AOT and maintain the well-managed financial profile.
TRIS Rating reported that KPD is a member of King Power Group, 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 AOT for ten years (2006-2016) to operate duty free shops at Suvarnabhumi International Airport and three other international airports. The products in KPD’s shops mainly consist of liquor, tobacco, perfume, watches, cosmetics, leather goods, 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 favourable as Thailand is considered one of the world’s attractive destinations. The government heavily promotes the tourism industry as it is a key earner of foreign currency. However, unforeseeable negative events, such as the Severe Acute Respiratory Syndrome (SARS) outbreak, the tsunami, and political turmoil, could cause temporary downturns for tourism. In addition, the increasing of oil prices would lead to higher traveling expenses which may discourage tourism.
TRIS Rating also said that the liquidity and financial flexibility provided to KPD by financial institutions and investors declined substantially since the AOT board of directors nullified the concession and informed KPD to cease operations in four international airports. On 4 June 2007, KPD filed a counter suit with the Civil Court and demanded compensation of Bt48 billion. On 31 January 2008, the Civil Court ruled in favor of KPD, allowing it to resume operations until the lawsuit is resolved. TRIS Rating will continue to monitor the development of the litigation. In the mean time, KPD is able to operate normally and generate sufficient cash flow. The outcome of the dispute, once finalized, will have a significant impact on the rating.
KPD’s financial profile improved significantly as the total debt to capitalization ratio decreased to 49% at the end of 2007 from 73% in 2006. KPD’s total debt decreased drastically after repaying a sizable portion of outstanding bank loans and bills of exchange. The earnings before interest, tax, depreciation and amortization (EBITDA) to interest ratio was around five times in 2007. The funds from operations (FFO) to total debt ratio significantly improved from 9.6% in 2006 to 36.6% in 2007 due to satisfactory performance during the first full year of operations at Suvarnbhumi International Airport.
TRIS Rating said, KPD’s credit rating involves the current level of related transactions within the group, including inter-company lending and guarantees. As of March 2008, KPD provided Bt2,179 million in loans to related companies, up from Bt1,647 million in 2007. Moreover, in 2007, KPD and its major shareholder, Mr. Vichai Raksriaksorn, guaranteed the loans of an associated company that manages commercial space in Suvarnabhumi International Airport, and other related companies investing in a downtown duty free complex and a five star hotel. TRIS Rating will closely monitor support within the group 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 2008, 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.
The “stable” outlook reflects KPD’s improved liquidity, sufficient cash flow protection, and the court order to allow KPD to continue to operate during the legal process. The rating of KPD could be revised if the company can settle the dispute with AOT and maintain the well-managed financial profile.
TRIS Rating reported that KPD is a member of King Power Group, 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 AOT for ten years (2006-2016) to operate duty free shops at Suvarnabhumi International Airport and three other international airports. The products in KPD’s shops mainly consist of liquor, tobacco, perfume, watches, cosmetics, leather goods, 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 favourable as Thailand is considered one of the world’s attractive destinations. The government heavily promotes the tourism industry as it is a key earner of foreign currency. However, unforeseeable negative events, such as the Severe Acute Respiratory Syndrome (SARS) outbreak, the tsunami, and political turmoil, could cause temporary downturns for tourism. In addition, the increasing of oil prices would lead to higher traveling expenses which may discourage tourism.
TRIS Rating also said that the liquidity and financial flexibility provided to KPD by financial institutions and investors declined substantially since the AOT board of directors nullified the concession and informed KPD to cease operations in four international airports. On 4 June 2007, KPD filed a counter suit with the Civil Court and demanded compensation of Bt48 billion. On 31 January 2008, the Civil Court ruled in favor of KPD, allowing it to resume operations until the lawsuit is resolved. TRIS Rating will continue to monitor the development of the litigation. In the mean time, KPD is able to operate normally and generate sufficient cash flow. The outcome of the dispute, once finalized, will have a significant impact on the rating.
KPD’s financial profile improved significantly as the total debt to capitalization ratio decreased to 49% at the end of 2007 from 73% in 2006. KPD’s total debt decreased drastically after repaying a sizable portion of outstanding bank loans and bills of exchange. The earnings before interest, tax, depreciation and amortization (EBITDA) to interest ratio was around five times in 2007. The funds from operations (FFO) to total debt ratio significantly improved from 9.6% in 2006 to 36.6% in 2007 due to satisfactory performance during the first full year of operations at Suvarnbhumi International Airport.
TRIS Rating said, KPD’s credit rating involves the current level of related transactions within the group, including inter-company lending and guarantees. As of March 2008, KPD provided Bt2,179 million in loans to related companies, up from Bt1,647 million in 2007. Moreover, in 2007, KPD and its major shareholder, Mr. Vichai Raksriaksorn, guaranteed the loans of an associated company that manages commercial space in Suvarnabhumi International Airport, and other related companies investing in a downtown duty free complex and a five star hotel. TRIS Rating will closely monitor support within the group 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 2008, 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.