TRIS Rating Co., Ltd. has assigned a rating to the proposed issue of up to Bt2,000 million in senior debentures of Minor International PLC (MINT) at “A”. At the same time, TRIS Rating has affirmed the company and current issue ratings of MINT at “A”. The outlook remains “stable”. The ratings reflect MINT’s diverse portfolio of well-accepted brands that strengthens market positions in both the hotel and quick service restaurant (QSR) businesses, a capable management team, a growing overseas presence in hotel management, and the potential to franchise its QSR brands in local and international markets. However, these factors are partially offset by the downturn in the tourism industry due to the global slowdown economy; the nature of the hotel industry, which is seasonal and highly sensitive to external factors; and the nature of the QSR industry which is highly competitive and has a low margin. An additional concern is MINT’s expansion plan, which may require substantial investment.
The “stable” outlook is based on the expectation that MINT’s cash flow will remain strong and will be used to support its committed capital expenditure (CAPEX) plan. MINT is expected to deliver a softer performance in the first half of 2009 since hotel revenue is impacted from the industry downturn. However, since the recovery is anticipated to take place in the second half of 2009, the full year performance is expected to reach nearly the same level as in 2008. Financial leverage should increase in the medium term as the company develops the hotel and residential property projects that are currently in the pipeline. If investments become overly aggressive, MINT’s credit quality may weaken.
TRIS Rating reported that MINT was founded in 1978 by Mr. William Ellwood Heinecke to operate a hotel in Thailand. The Heinecke family is the major shareholder, with a 49.8% stake. The hotel portfolio has grown impressively during the last seven years, making it one of the most diversified hotel companies in Thailand. MINT’s diverse hotel portfolio includes 27 properties (3,200 keys) located in Bangkok and other top-ranked tourist destinations including Thailand, Indonesia, the Maldives, Sri Lanka, Tanzania, United Arab Emirates (UAE) and Vietnam. The hotels are managed and operated under well-recognized international brands (Marriott and Four Seasons) and its own brands (Anantara, Elewana and Naladhu). The group’s food business is operated under The MINOR Food Group PLC (MFG). MFG, which was established in 1980, is the largest QSR operator in Thailand, operating four international QSR franchise brands (Swensen’s, Sizzler, Dairy Queen, and Burger King) and its own brands (The Pizza Company, The Coffee Club and Thai Express). At the end of March 2009, MFG had more than 600 outlets and around 400 franchises and sub-franchises located in Thailand and overseas. Recently, the company announced a reorganization plan that will bring operations of Minor Corporations PLC (MINOR), which include fashion, cosmetics and manufacturing, under the MINT umbrella. After the restructuring, which is expected to be completed in June 2009, the Heinecke family will remain the major shareholder with a controlling stake as in the past.
TRIS Rating said, the revenue from hotel and QSR sales account for approximately 90% of MINT’s total revenue. Compared with peers in both businesses, MINT has a larger and more diverse revenue base, having grown impressively in recent years. As a result of additional QSR outlets and hotel performance before the last quarter of 2008, MINT’s revenue grew by 12% (average growth rate) to Bt15,814 million, from Bt11,716 million in 2006. For the first three months of 2009, revenue dropped by nearly 2% to Bt4,118 million, compared with Bt4,185 million in the same period of 2008. Average revenue per available room (RevPAR) from the company-owned hotels decreased by 28% in the first three months of 2009 to Bt3,892 from Bt5,405 in the same period of 2008. The drop in RevPAR reflected the global economic slowdown and Thai political uncertainty, which together lowered tourist confidence. QSR operations have not only focused on organic revenue growth through both equity and franchise outlet expansion, but also seek to grow by acquiring new QSR brand. Driven by that acquisition (The Coffee Club and Thai Express), the food business is expected to grow further this year. The number of equity outlets increased significantly from 553 at the end of 2007 to 656 outlets at the end of March 2009. Same store sales slightly increased by 0.1% in the first three months of 2009. MINT’s debt level, as measured by the debt to capitalization ratio, remained at around 40% in the past three years and is expected to increase near 50% at the end of 2009 after the construction is underway for two new hotel properties.
TRIS Rating also said, the Thai tourism industry had been largely affected by the global economic recession and the political unrest in Thailand since late 2008 to mid April 2009 when anti-government demonstrations led to riots in Bangkok. The number of international tourist arrivals to Thailand in the second quarter of 2009 is expected to decrease, following a 15% drop in the first quarter, with a potential contraction in the full year number. The downturn has become an industry-wide threat, weakening the performance of hotel operators and forcing some owners with financial difficulties to sell properties. For hotel operators with sufficient financial resources, there seems to be an opportunity for new investment at reasonable prices. It is crucial for hotel operators to maintain sufficient liquidity and financial flexibility to stay viable during the downturn. Hence, major debt-financed acquisitions may reduce the financial cushion and credit profile of the operators. -- End
Company Rating: Affirmed at A Issue Ratings: MINT105A: Bt1,100 million senior debentures due 2010 Affirmed at A MINT10DA: Bt1,000 million senior debentures due 2010 Affirmed at A MINT11OA: Bt1,000 million senior debenture due 2011 Affirmed at A MINT129A: Bt1,840 million senior debentures due 2012 Affirmed at A MINT149A: Bt2,060 million senior debentures due 2014 Affirmed at A Up to Bt2,000 million senior debenture due within 2013 A Rating Outlook: Stable
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