Fitch cuts Erawan view to negative

Fitch Ratings said it revised the outlook on The Erawan Group plc to negative from stable and affirmed Erawan's national long- and short-term senior unsecured debt ratings at BBB(tha) and F3(tha), respectively.

The change in outlook is based on Erawan's more aggressive investment policy, which weakens its financial flexibility, Fitch said. Apart from its initial investment plan for two new hotels, the group recently announced additional investment totaling about THB5.8 billion, consisting of a four-star hotel in Pattaya and another 10 new economy hotels in Thailand's six key tourist destinations.

Although this helps increase diversification and provides strong earnings growth prospects, Fitch views that the expected cash outflow for new hotel projects should weaken its financial leverage profile and put pressure on its liquidity management.

Taking into account its additional investment plans, its net adjusted debt-to-EBITDA ratio is expected to increase to about 6.0x in 2007 while the expected stronger EBITDA from new hotel projects should result in a gradual decline in leverage thereafter, the agency said.

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