OREANDA-NEWS. Fitch Ratings (Thailand) Limited has affirmed WHA Corporation Public Company Limited's (WHA) National Long-Term Rating and the National Long-Term Rating on its outstanding senior unsecured debentures at 'BBB+(tha)'. The Outlook remains Negative. Simultaneously, Fitch has affirmed WHA's National Short-Term Rating at 'F2(tha)'.

KEY RATING DRIVERS

Deleveraging Depends on Asset Disposal: The Negative Outlook continues to reflect the uncertainty about the company's deleveraging plan. Most of the company's funds for repaying debt will come from asset disposals, which are subject to market conditions that affect the valuation and timing of the disposals. Fitch expects WHA's consolidated net debt to decrease by THB4.6bn in 2016. The debt reduction could be as much as THB11bn if WHA completes the spin-off of its utility business.

High but Decreasing Leverage: Fitch expects WHA's financial leverage to reduce to a level commensurate with its ratings by 2018, mainly based on its asset disposal plan. WHA's FFO-adjusted leverage is likely to remain at 5.0x-6.0x in 2016-2018, although deleveraging could be accelerated if the company successfully spins off the utility business by the end of 2016.

More Integrated Business Model: The acquisition of Hemaraj Land and Development Plc (Hemaraj) has strengthened WHA's market position in the industrial property business, supporting its leadership in the development of both premium built-to-suit warehouses for lease and industrial estates in Thailand. WHA's revenues have more than doubled while the proportion of recurring revenue to total revenue should rise to 33%-34% over the medium term, from 10% before the acquisition.

More Exposed to Business Cycles: The expansion into industrial estate development has made WHA more vulnerable to volatility in land sales and cyclicality of property demand as well as higher competition. WHA's original business of developing premium built-to-suit warehouses for lease limited its exposure to property market cycles because the warehouses are pre-leased and have long-term contracts. The competition in this niche market is also relatively low.

Temporary Structural Subordination: WHA's senior unsecured debt could be structurally subordinated to the acquisition loans, which were taken by the subsidiary that directly holds the shares in Hemaraj. However, most of the loans are due by mid-2017, and the structural subordination is, therefore, temporary and likely to be limited.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:

- 15%-20% increase in rental and service income in 2016, partly due to the first full-year consolidation of Hemaraj's performance, and 7%-8% growth in 2017

- 40% decrease in revenue from sales of industrial estate land in 2016, due to the faster recognition of revenue from land sold in 4Q15; revenue from industrial estate land sales to rise 60%-65% in 2017 to return to normal levels

- Sale of about THB10bn of investment properties to REITs in 2016, and about THB3bn in 2017 (excluding sales by JVs)

- EBITDAR margin to increase to 40%-45% in 2016 due to substantial sales of high-margin investment properties by Hemaraj; and to decrease to 35%-40% in 2017-2018

- Total capex, including project development cost and investment in affiliates, of about THB5bn a year in 2016-2017

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively lead to revision of the Outlook to Stable include:

- The consolidated FFO-adjusted leverage at below 5.5x on a sustained basis, and/or

- Evidence of progress of the asset disposal plan and debt repayment

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

- The consolidated FFO-adjusted leverage at above 5.5x on a sustained basis.