LAND & HOUSES
Fitch revises L&H's outlook downwards due to 'more aggressive financial policy'
Fitch Ratings (Thailand) yesterday revised the rating outlook for Land and Houses (L&H) from stable to negative, due to the company's more aggressive financial policy, evidenced by its recent substantial dividend pay-out for interim 2006 results.
The dividend was substantial despite a weaker operating performance and higher funding requirement for investments in other businesses, which resulted in a higher-than-expected net debt and worse-than-expected financial-leverage profile, the rating company said in a press statement. At the same time, Fitch affirmed L&H's A-(tha) national long-term rating and F2(tha) national short-term rating. In the first half of this year, L&H's earnings before interest, taxes, depreciation, amortisation and rent (EBITDAR), dropped 35 per cent year on year to Bt1.8 billion, affected by an industrywide slowdown. A high dividend pay-out of Bt2.1 billion for the second half of its fiscal 2005, an increase in working-capital requirements, higher capital spending for its recurring property-related business and a capital increase in a number of its non-core companies - mainly the Land and Houses Retail Bank - resulted in a substantial increase in L&H's net debt to Bt13.4 billion at the end of the first half of fiscal 2006, from Bt10.7 billion at the end of fiscal 2005. Despite its weaker operating performance, L&H's financial policy appears less conservative, especially on dividend pay-outs. L&H announced a 100-per-cent dividend pay-out for its interim fiscal-2006 results, totalling Bt1.4 billion, which was paid in September. Its net debt is expected to rise further in the second half of this year, due largely to its aggressive dividend pay-out, notwithstanding projected cash inflows from the sale of assets to property funds. L&H also indicated its high-dividend policy of at least 70 per cent was likely to be maintained for 2007-08. L&H's pro forma net debt-to-EBITDAR ratio is expected to increase to 3-3.5 by the end of this year, up from 2.7 at end of the first half and below 2 in 2004-05. Its credit-protection ratio of above 3 is inconsistent with the current rating level, although this is still relatively strong compared with its property peer group locally. L&H's liquidity, while weakening, remains manageable, supported by a cash balance of Bt965 million and its remaining undrawn committed credit facilities from local financial institutions of Bt1.4 billion at end of the first half of this fiscal year. Its ability to access the local capital market and a sizeable holding of marketable securities for sale also help support its liquidity profile.
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