Land and Houses Public Company Limited (LH) has had its corporate and bond credit rating downgraded from “A+” to “A” by TRIS Rating, reflecting the ongoing challenges in the Thai real estate sector.
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TRIS Rating announced the downgrade of LH’s corporate credit rating and its senior unsecured debentures to “A” from “A+”, while maintaining a “Stable” outlook. Additionally, a credit rating of “A” was assigned to LH’s proposed new debenture issuance of up to THB10 billion.
This downgrade reflects LH’s lower-than-expected operating results and a rapid increase in its debt burden. These challenges stem from a sluggish housing market, high-interest rates, and rising household debt, leading banks to tighten mortgage lending.
Despite LH’s strengths, including a strong brand in the housing development market and diversified income sources, TRIS Rating anticipates the company will continue to face headwinds from unfavorable market conditions and intense competition.
Key Factors Behind the Downgrade
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Weaker-than-expected performance: LH’s performance in 2023 and the first half of 2024 fell short of TRIS Rating’s projections. Delays in new project launches and property transfers, coupled with higher mortgage rejection rates, contributed to this underperformance. Although rental and service income recovered, it couldn’t fully offset the decline in housing sales revenue. TRIS Rating expects LH’s revenue to remain weak in 2024, with a gradual recovery over the next 1-2 years.
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Sharp increase in debt: LH’s debt burden has risen significantly due to land acquisitions, hotel construction investments, and an acquisition in the USA. This has pushed its debt-to-capital ratio higher than TRIS Rating’s estimates. While the ratio is expected to gradually decrease, it will likely remain elevated for the next few years.
LH’s Strengths: Strong Brand and Diversified Income
Despite the challenges, LH retains its strong brand in the housing development market, particularly in the landed property segment. It also benefits from diversified income streams, including housing sales, rental and service income, gains from asset sales, and dividends from investments.
The company is actively expanding its rental property business, focusing on hotels and shopping malls, to generate recurring income and enhance liquidity.
“Stable” Outlook, But Challenges Remain
TRIS Rating maintains a “Stable” outlook on LH’s credit rating, indicating an expectation that the company will sustain its market position and achieve performance in line with estimations.
However, if LH’s performance or financial situation deteriorates beyond expectations, further credit rating downgrades are possible.
The downgrade of LH’s credit rating underscores the fragility of the Thai real estate sector, which is grappling with economic slowdown, rising interest rates, and high household debt.
While LH possesses strengths, it faces the challenge of maintaining performance and managing its debt amidst a difficult market environment.
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