Tris Rating has affirmed the company rating on Ananda Development Plc and its senior unsecured debentures at BBB.
The company also affirmed the rating on Ananda's existing 2-billion-baht unsecured subordinated perpetual debentures (hybrid debentures) at BB+, two notches below the company rating, due to the nature of the hybrid debentures and the option of the issuer to defer coupons on a cumulative basis.
The proposed hybrid debentures' characteristics, including subordination, the interest deferral at the discretion of the company, the five-year non-call period, and sufficient permanence, were qualified for receiving intermediate equity content under Tris Rating's criteria.
Tris treats 50% of the principal amount of the debentures as equity and the remaining 50% as debt when calculating Ananda's financial ratios. The intermediate equity content will fall to minimal (or 0% of equity treatment for this issue) at the end of the fifth year from the issuance date.
This is because, after five years of issuance, the remaining effective tenor of the issue will be less than 20 years. According to Tris's criteria, the effective maturity date of the issue will be defined as the date when there is a material step-up (equal to or more than 100 basis points of the coupon rate).
In this case, the interest spread of the hybrid debentures will step up by 100 basis points at the end of the 25th year.
The ratings on Ananda and its debentures reflect the company's strong market competitiveness in the condominium segment, its proven track record in the residential property market and expected higher contribution of shared profits from its investment in joint venture projects.
As of June 2018, Ananda had 33 existing condominium projects (including 21 condominium projects under joint ventures) and 14 landed property projects, with the total remaining value of 40 billion baht (including built and unbuilt units). Condominium projects comprised 83% of total unsold value, while landed property projects accounted for the rest.
Ananda's operating income margin was 15-20% from 2016 through the first six months of 2018. Its net profit margin increased to 14% in the first half of 2018 from 10-12% during 2015-17. Ananda's profitability may be threatened by rising land costs and intensifying competition in both condominium and landed property markets.
Tris expects Ananda's operating income to stay near 15% during 2018-20, in line with the industry average.
The rating firm expects Ananda's net profit margin to be higher compared with the past several years, as the company will realise a greater portion of revenue from project management services and shared profits from its investment in the joint venture condo projects.
With its aggressive business expansion through its own and joint venture projects, Ananda's needs for capital to pursue the growth plan remain significant.
Tris views that Ananda's financial leverage will remain high during 2018-20. But Ananda is expected to keep its ratio of adjusted net debt to net capitalisation at 65-67%, or the ratio of adjusted interest-bearing debt to equity at about 2.
At the end of June, Ananda had 1.58 billion baht in cash, plus undrawn committed project loans from financial institutions of about 2.5 billion baht.
