Developers manage debt, lower costs with bonds

Net gearing is total debt calculated as a ratio of the total of shareholders’ funds and debt funds.
According to a survey by The Nation, the top 10 listed property firms issued debentures with terms ranging from three to five years between early this year and mid-August worth a total of Bt23.9 billion. That is 19.2 per cent of the total new debentures of the same term range issued in the period, amounting to Bt124.23 billion, as reported by the Bank of Thailand.
Land & Houses plans to issue total debentures worth Bt6.5 billion this year, Bt4 billion of which were issued in the first half, with the rest to follow in the current second half.
Pruksa Real Estate will issue debentures worth Bt5 billion next month.
Asia Property Development issued debentures worth Bt2.2 billion in the first half.
Asia Plus Securities senior executive vice president Terdsak Tawee-thiratham said debenture issues were a way to manage cash flow as a balance to borrowing from the commercial banks.
However, debentures are often a better alternative to project loans from banks because they allow |property firms to manage their |long-term debt to match the sales periods of their projects. This is especially so for condominiums, which take about two or three years from project launch to transfer to the customer.
According to research by Asia Plus Securities, the debt-gearing ratio, based on interest-bearing loans to equity, of listed property firms doubled from 0.4:1 in 2010 to 1.03:1 in the middle of this year. When property firms expand their investment in condominium projects, they need more funding flexibility.
Most of the property firms surveyed plan to transfer condominium projects launched two years ago in the current half of this year. This will maintain or reduce their debt-gearing ratio lower than 1.03:1 by the end of the year. This will ensure low risk for this sector, Terdsak said.
Asian Property Development chief executive officer Anuphong Assava-bhokhin said debenture issues were part of its strategy to manage its business risks because their maturity period of three to five years matched the firm’s business cycle. Their interest costs were also lower than for bank loans.
“However, we have continued to use bank loans, depending on the deal,” he said.
Land & Houses senior executive vice president Adisorn Thananan-narapool said the company spent the funds raised from debentures to support its investments and pay back some debentures that will expire this year. This is how it manages its costs and cash flow.
“Debentures with periods between three and five years suit our investment plan,” he said.