Developers in good financial health

A survey by The Nation has compared figures filed by 25 listed property companies for 2008 with those they filed for 2007. Fifteen of the 25 reported a debt-to-equity ratio at the end of 2008 that was lower than 1:1. Another nine firms reported debt-to-equity ratios higher than 1:1 but still lower than 2:1.

Areeya Property recorded the highest debt-to-equity ratio of 2.33:1, or up 7.87 per cent from the figures of 2.16:1 at the end of 2007 (see table).

The chairman of international law firm Baker & McKenzie (Bangkok), Kittipong Urapeepatanapong, said the financial results of Thailand's property firms showed a healthier status than 11 years ago, when they faced the 1997 financial crisis. Most of them learnt from that crisis to manage their cash flow and debt. As a result, most of them now have the financial good health to see them through the new economic crisis.

Land & Houses' senior executive vice president Adisorn Thananun-narapool said his company managed its cash and debt to maintain a debt-to-equity ratio below 1:1 because that status gave the company sufficient flexibility to endure a financial crunch.

The company's debt-to-equity ratio is now only 0.62:1, and although that is about 6.89 per cent higher than the ratio of 0.58:1 at the end of 2007, it is still lower than the industrial standard of 1:1, he said.

Land & Houses also tries to manage its inventory and cash flow so that it has enough cash for annual investments rather than borrowing from banks or issuing debentures, and this policy has maintained a debt-to-equity ratio lower than 1:1 since the 1997 financial crisis, he said.

LPN Development's managing director Opas Sripayak, whose company reported a debt-to-equity ratio of 0.58:1 at the end of 2008, said the company's management had learnt from the 1997 crash. At that time LPN Development was burdened with a debt-to-equity ratio of more than 3:1. So it has learnt to manage its total debt to maintain a debt-to-equity ratio lower than 1:1. To achieve this, it spends its own cash rather than borrowing from banks, and when it does need a project loan from the bank, it speeds up repayments when the project is complete to hold its debt-to-equity ratio lower than 1:1. That is better than the industrial standard, he said.

LPN Development believes the economic downturn will not have a serious impact on its financial results this year. Although its presales may be lower than those at the start of last year, its revenue and financial status continues to be strong enough to sail through the crisis, Opas said.

Preuksa Real Estate's chief executive and managing director Thongma Vijitpongpun said his company had strict management policies concerning the use of its own cash rather than borrowing from banks.

"We speed up construction and deliver to our customers within 120 days after they buy from our projects. That speeds up our cash receipts so that we can invest our own cash and borrow less money from the bank," he said.