OREANDA-NEWS. Fitch Ratings (Thailand) Limited has assigned a 'BBB+(tha)' National Long-Term Rating to WHA Corporation Public Company Limited's (WHA, BBB+(tha)/Negative) new senior unsecured debentures of up to THB2bn due in 2018 and 2020. The proceeds of the debentures will be used to refinance some existing loans and fund working capital requirements.

KEY RATING DRIVERS
High Financial Leverage: WHA's consolidated financial leverage is likely to rise significantly in 2015-2016 because the acquisition of Hemaraj Land and Development Public Company Limited (Hemaraj) was mainly financed via debt of THB32bn. About 85% of this debt is due by mid-2017. Fitch expects WHA's FFO-adjusted leverage to be at 5.0x-5.5x after it repays the debt due by mid-2017. The loans will be repaid by proceeds from asset disposals and cash saving from scaling back capex.

Reliance on Asset Disposal: The Negative Outlook on the company's rating reflects the uncertainty of the company's de-leveraging plan. Most of the sources of funds for the debt repayment will come from asset disposals, which are subject to market conditions. This could affect the valuation as well as the timing of the disposals. Fitch expects WHA to repay about THB12bn of the acquisition loans by end-2015. Sales of non-core assets of Hemaraj have already been carried out in April 2015 as planned with the proceeds of THB3bn. . Another two lots of assets i.e. WHA's office buildings for rent and Hemaraj's ready-built factories and warehouses are likely to be disposed in September and December 2015 respectively. (The proceeds from WHA's warehouses to be sold to a REIT planned at the end of 2015 is, nonetheless, not for this loan repayment but for WHA's expansion plan and normal working capital requirements.)

More Integrated Business Model: The Hemaraj acquisition has strengthened WHA's market position in industrial property business, supporting its leadership in the development of both premium built-to-suit warehouses for lease and industrial estates in Thailand. Its operating scale, in term of revenue (not including Hemaraj's sales of investment properties to a REIT), will likely increase to THB13bn-THB14bn in 2015-2017 from less than THB5bn in 2014. The proportion of recurring revenue (not including share of net profit and loss from Hemaraj's affiliates in power business) to total revenue should rise to about 25% from 10% previously, mainly from Hemaraj's utility service business for its industrial estates.

Larger Exposure to Cyclicality: The expansion into industrial estate development has increased WHA's exposure to volatility of 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 its 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. Dividends from Hemaraj, mainly from the sales of assets specifically earmarked for loan repayment, are likely to be used to repay the loans at this subsidiary. 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:
- Almost 200% increase in total revenue in 2015 from the consolidation of nine months of results from Hemaraj;
- A decrease in EBITDA margin in 2015 due to low margin on sales of office buildings with an increase in 2016 to slightly above the 2014 level;
- A 40%-45% reduction in capex on land acquisition and project development costs by WHA and Hemaraj in 2015-2016 from the 2014 level

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action and/or revision of the Outlook to Stable include:

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