Bangkok--8 Apr--TRIS Rating
TRIS Rating Co., Ltd. has assigned the company rating of BTS Group Holding PLC (BTSG) at “A” with “stable” outlook. The rating reflects BTSG’s 94.6% investment in Bangkok Mass Transit System PLC (BTSC) which is expected to generate a reliable cash flow stream from mass transit operation and advertising business. The rating also takes into consideration a growth potential from property development. However, these strengths are partly constrained by high leverage, an aggressive investment policy, and the risk inherent in the property development business.
The “stable” outlook reflects the expectation that the BTS mass transit business will continue to generate stable and predictable cash flows. However, increasing leverage, especially at the holding company level, and diversifying into riskier business could put pressure on the rating of BTSG.
TRIS Rating reported that BTSG was established in 1968 under former name, Tanayong PLC. The company’s principal business was property development which had not been so active since the financial crisis in 1997. In 2008, the company expanded to the hospitality business by establishing a joint venture company, Absolute Hotel Services Co., Ltd., to provide hotel management services under its own brand, “U Hotel”. Currently, BTSG’s two own hotels are located in Chiang Mai and Kanchanaburi provinces. In May 2010, the company acquired a 94.6% stake of BTSC, which the company founded back in 1992. BTSC is a concessionaire sky train operator and was awarded a 30-year concession by the Bangkok Metropolitan Administration (BMA) to build and operate the Bangkok Mass Transit System (BTS) which runs through Silom, Sathorn and Sukhumvit areas. Under the terms of the concession, BTSC has the right to collect fares and undertake all commercial activities on the system, including advertising and leasing space, until the expiry of the concession in December 2029. In late 2009, BTSC started its property development business by launching a 4-star hotel, currently under construction. Therefore, from fiscal year 2011 onward, BTSG’s business expanded to include the electric train network operation, advertisement, property development, and hospitality. The company's financial profile will drastically change, mainly reflecting BTSC's operations. BTSG’s revenue generated during the fiscal year 2008 to 2010 was around Bt800-Bt1,000 million per annum mainly from Baan Aue-Arthorn projects which were completed. For the first nine months of fiscal year 2011, the company reported total revenue of Bt4,313 million. BTS became the largest contributor of 64% of the company’s total revenue, followed by advertisement (23%) and property (11%).
TRIS Rating said, upon the completion of debt restructuring in 2006, BTSG’s capital structure was strengthened with a significant reduction in debt and an injection of new equity capital. BTSG’s outstanding debts declined from Bt35,176 million in fiscal year 2006 to Bt4,779 million in fiscal year 2007. The level of debt fell to Bt2,313 million in fiscal year 2010. However, its debt increased sharply to Bt24,086 million at the end of December 2010 due to the debt-funded acquisition of BTSC and the consolidation of BTSC’s debt. Total acquisition cost was Bt40,035 million which BTSG paid by share swap, rights offering, and new debt. Despite the rise in debt, the equity level increased substantially. Thus, the ratio of debt to capitalization moderately increased from 32.26% in fiscal year 2010 to 39.06% at the end of December 2010. BTSG is expected to report a positive operating income and funds from operation (FFO) for the first time during the last five years in fiscal year 2011. Cash flow protection will, therefore, improve correspondently.
BTSG is the operating holding company. Its main source of revenue is from BTSC's operations. Despite a full control of BTSC's business, BTSG's free cash flow to serve its financial obligation relies heavily on dividends from BTSC. Therefore, the creditors of BTSG are, to some extent, subordinated to those of BTSC. The issue rating of BTSG is likely to be lower than its corporate rating, said TRIS Rating.
BTS Group Holdings PLC (BTSG)
Company Rating: ARating Outlook: Stable