TRIS Rating Affirms Company Rating of “UV” at “BBB” with “Stable” Outlook

TRIS Rating Co., Ltd. has affirmed the company rating of Univentures PLC (UV) at “BBB” with “stable” outlook. The rating reflects the strong support from a major shareholder -- Adelfos Co., Ltd., the potential recurring income from an office rental project in the heart of Bangkok, and the ability to maintain the leading position in the zinc oxide (ZnO) business. These strengths are partially offset by the risk from completion of the Park Ventures project, a short track record as a property developer, and the expected leverage increase to fund property investments. TRIS Rating also takes into consideration the cyclical nature of both the property development and ZnO industries and the relatively low level of consumer confidence, which is the result from the economic condition and uncertain political situation.


The “stable” outlook reflects the expectation that UV will be able to carry out construction of its huge commercial property project as planned. UV’s financial profile during the construction period is expected to weaken since the company will incur a significant amount of new debt to complete the project. Revenue from residential property development is anticipated to become more significant in 2010 while the number of project openings in the future will be maintained in order to keep the growth of residential sales as planned.

TRIS Rating reported that UV was established in 1980 as a ZnO producer. The company started to shift its focus to the property development sector in 2000 by investing in a number of joint ventures (JV) with selected property developers. The JVs have successfully launched more than 20 projects worth a combined total of over Bt17 billion. UV’s shareholding significantly changed after Adelfos became the major shareholder in 2007. Adelfos is a company owned by the sons of a Thai liquor tycoon, Mr. Charoen Sirivadhanabhakdi, who still owns a number of property companies under the TCC Group. Currently, Adelfos holds 51.6% of UV’s shares. Since 2007, UV has focused more on high-rise residential property development. In 2007, the company increased its stake in Grand Unity Development Co., Ltd. (GUD), a condominium development company, from 33% to 60%, taking a full control of GUD’s operations. GUD is currently developing several condominium projects under the brand U Sabai and U Delight for the middle-income segment. The company is also developing a very large mixed-use high-rise commercial property project, Park Ventures, which will contain office space and a hotel. UV subleased the hotel portion of the project, which is around half of the total lettable area, to be operated by TCC Luxury Hotel and Resort Co., Ltd. (TCCLH), an affiliate of its major shareholder. UV has been receiving a lump sum leasehold payment from TCCLH to support the project construction. UV will only operate the office space portion when the project is completed in 2012.

TRIS Rating said, since the investment in the residential property business was in the early stage of development, sales of ZnO was the major source of UV’s revenue in the first three quarters of 2009. ZnO sales generated around 70% of total revenue. The company expects sales of residential units to grow and contribute around 50% of total revenue in 2010. The overall operating performance of UV slowed in 2008-2009. The sales volume of ZnO products in the first three quarters of 2009 remained at the same level as in recent years, but the value dropped by 37% from the same period of 2008 due to the significant drop in price on the London Metal Exchange (LME). Revenue from residential property development was Bt211 million, accounting for 27% of total revenue for the first three quarters of 2009, up from Bt31 million for the whole year of 2008. The operating margin was -1% in 2008 and -4.5% in the first three quarters of 2009. Total debt (excluding leasehold obligations) significantly increased from Bt34 million at the end of 2007 to Bt568 million at the end of 2008 and Bt702 million at the end of September 2009. Funds from operations (FFO) increased from Bt120-Bt130 million in 2006-2007 to Bt367 million for 2008 and Bt388 million through the first three quarters of 2009, due mainly to the advance receipts from

TCCLH for the long-term lease of the hotel. Hence, cash flow protection, which had been unusually high, fell to a normal level for the residential property industry. FFO to total debt ratio, which had been ample in the past, dropped from 357% in 2007 to 64.5% in 2008 and 52.1% (non-annualized) in the first three quarters of 2009.

The residential property market was volatile over the past year, reflecting the national political instability and the global financial crisis. Although it recovered in the second half of 2009, the market remained relatively slow and has become increasingly dominated by major developers. Government tax incentives that allowed homebuyers to get a personal income tax deduction of up to Bt300,000 for the purchase of a new residence expired in December 2009. Hence, demand for residential property in 2010 is expected to be in line with that in 2009 but still depends heavily on the economy and consumer confidence, said TRIS Rating.