TRIS Rating stated that it has placed CreditAlert with a negative implication on the company and issued ratings on Sena Development Public Company Limited (SET: SENA). The CreditAlert follows SENAs success in acquiring a 35.35% stake in J.S.P. Property PLC (JSP), a property developer listed on the Market for Alternative Investment (MAI). The acquisition cost THB742 million in total, about 80% of which was funded by bank loans. Given its controlling power over JSP, SENA should consolidate JSPs financial statements from 1 March 2022 onwards.
The negative CreditAlert reflects its concerns over SENAs increasing debt burden following the acquisition and its lower profitability after consolidating JSPs operations. JSP has reported lower-than-average profit margins for the industry, with net losses during the past three consecutive years. As of December 2021, JSP had 20 existing residential projects, consisting of 13 landed property projects, three condominium projects, and four commercial building projects, with an aggregate remaining value of THB7.2 billion. JSPs residential sales were about THB1 billion annually during 2020-2021, with negative earnings before interest, tax, depreciation, and amortization (EBITDA). TRIS Rating assessed that SENA will likely face significant challenges to revive JSPs operations amid an unfavorable market environment.
In addition, SENAs financial leverage was higher than its expectation. Its debt to capitalization ratio rose from 53% in 2020 to 58% in 2021, higher than its projection of 52%. The company’s funds from operations (FFO) to total debt ratio dropped to 8% in 2021, compared with above 10% during the past several years. SENAs continuing aggressive condominium portfolio expansion through its own and joint venture (JV) projects, together with the mostly debt-funded share purchase, is pressuring its capital structure and cash flows against debt obligations.
Following the completion of the share acquisition for the 35.35% interest, SENA is required to make a tender offer for the remaining stake of 64.65% in JSP, which is expected to be completed in mid-April 2022. SENA will have to pay an additional amount of about THB1.36 billion in the scenario of acquiring all the remaining shares. About 60% of the tender offer would be funded by banks loans. However, as the offering price of THB0.50 per share for the ordinary shares of JSP is significantly lower than the current market price, TRIS Rating viewed that there is a low probability of SENA acquiring the remaining shares. If SENA does acquire the remaining stake in JSP, its leverage could deteriorate further.
TRIS Rating stated that it will resolve the CreditAlert once the tender offer has been concluded and the rating company has thoroughly assessed the full impact of the JSP acquisition on SENAs credit profile.
