Ananda Development Plc will cut the prices of its ready-to-move-in residential units, reducing the company's gross profit by 8%, in an effort to secure liquidity and bolster cash flow amid a risk that it may be unable to secure a bond rollover, along with the crisis generated by the Ashton Asoke case.
Prasert Taedullayasatit, chief executive of property business, said the court’s ruling in late July this year to revoke the construction permit for Ashton Asoke, the company’s completed and transferred 50-storey condo project, had subsequently had an impact on the company.
“We need to reduce debt in the current rising interest rate environment,” he said. “The corporate bond market is showing signs of drying up due to waning confidence, leading to limited bond roll-over opportunities for only companies with investment-grade ratings.”
After repaying 3 billion baht in corporate bonds in the first quarter of 2023 and another 1.7 billion baht last month, the company has a remaining obligation to repay corporate bonds tallying 700 million baht in the fourth quarter of 2023.
Next year, the company has scheduled repayments of over 7 billion baht which will comprise 3.8 billion baht in the first quarter and 3.2 billion baht in the third quarter.
As of the end of the second quarter of 2023, the company had a cash balance and equivalents of 4.82 billion baht, a decrease from 8.4 billion baht at the end of the first quarter.
The debt-to-equity ratio stood at 2.13 times, a slight decrease from 2.21, while the net interest-bearing debt-to-equity ratio rose to 1.47 times from 1.34.
As of Aug 31, 2023, the company had ready-to-move-in unsold condos worth a combined 29.2 billion baht across 29 projects, which will generate revenue once sold and transferred.
In order to generate cash and boost revenue in the fourth quarter of the year, the company will offer discounts of up to 30% on ready-to-move-in condos, single detached houses and townhouses priced between 1.39-35 million baht at 27 projects citywide.
It aims to have 1,100 units worth a combined 7.33 billion baht sold and transferred in the final quarter from its campaign and expects to have total transfers of 15.9 billion baht by the end of the year which was revised up from an earlier target of 13.5 billion baht.
“Discounts will reduce the gross margin by 8% and have a significant impact on the bottom line,” he said.
“However, we can reduce the debt by 1 billion baht and lower the debt-to-equity ratio to less than 2 times. Without the campaign, we may have only 4-5 billion baht in transfers in the fourth quarter.”
Of the expected 7.33 billion baht in transfers, 3.8 billion baht will be retained by the company, while the remainder will be distributed to its partners with whom it has joint ventures. The largest partner is Japan’s real estate giant Mitsui Fudosan.
He said the company’s gross profit margin was 20% when he joined the business in mid-2020. It rose to 21-23% in 2021-22 before reaching a peak of 26% in the first half of this year.
“Gross profit margin in the fourth quarter may temporarily drop to below 20% due to our need for equity following the Ashton Asoke case,” he added. “If we didn’t have the case, or if we win it, our profit margin will reach 28%, and we will take off.”