Fitch ready to rate REIT bonds
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REAL ESTATE investment trusts are expected to require credit ratings for their bonds once the Securities and Exchange Commission issues regulations for issuing them, according to Fitch Ratings (Thailand).
Lertchai Kocharoenrattanakul, senior director of corporates/funds, said yesterday that Fitch hoped to rate REIT bonds.
The ability to issue bonds could help encourage more property companies to set up REITs.
The new regulations will allow REITs to raise the loan-to-value ratio to 60 per cent from 35 per cent.
REITs are a new investment |tool for the Thai capital market. There are already four of them – |the Bt19.6-billion IMPACT, Bt5.9 billion LHSC, Bt4.4 billion WHART and Bt4.2 billion TREIT.
Fitch believes listed companies in the property sector will set up more such trusts in 2015 and REITs will consider issuing bonds next year if the SEC’s regulations come out this year. Unit holders of REITs are also interested in investing in REIT bonds.
Fitch Ratings (Thailand) yesterday held a briefing for investors and analysts on the criteria for the new bonds.
Somruedee Chaiworarat, director of corporates, said the cash flows of REITs had good visibility because of long-term contracted rental income, but REIT issuers needed to go to the capital market to refinance debt and finance redevelopment of long-term capital-intensive assets.
Capital access and refinancing risk are the key credit factors, as internal cash flow is normally not sufficient to repay debt.
Credit ratings for REITs in Thailand should be in the range of “A” to “AAA”.
The international rating scale for REITs is “BB” for the asset scale of less than 500 million euros and “BBB” for more than 500 million euros.
Fitch Thailand covers 10 sectors. In the corporate sector alone, Fitch has assigned credit ratings to 29 corporations.
Lertchai said on the sidelines of the briefing that the company had maintained a “stable” outlook for its corporate clients despite the economic slowdown.
“We have to look at the medium to long term. The slowdown is short-term and Fitch believes the economy is recovering. Therefore, the current economy does not influence us in revising credit ratings,” he said.
However, the downturn of the crude-oil price has led Fitch Thailand to watch the outlook of corporations in the upstream industry. Those companies have reduced investments to manage costs, so the outlook for the upstream industry should be “stable”.
For downstream petrochemical firms, only the outlook for IRPC has been revised from “stable” to “negative” because of weaker earnings.
However, the tepid growth of the economy is challenging the banking industry to control credit quality and defend against sour loans, said Parson Singha, senior director for financial institutions.
With its strong capital base, the banking industry could weather these circumstances. The industry outlook should remain stable for the rest of this year. Banks are maintaining an average capital adequacy ratio of 16 per cent, well above the Basel III minimum of 8.5 per cent.
