Bangkok--10 Nov--TRIS Rating
TRIS Rating has affirmed the company rating of Don Muang Tollway PLC (DMT) and the ratings of its existing senior unsecured debentures at “A-”. At the same time, TRIS Rating has assigned the rating of “A-” to DMT’s proposed issue of up to Bt800 million in senior unsecured debentures. The outlook remains “stable”. The proceeds from the proposed debentures will be used to refinance DMT’s debentures maturing in December 2014. The ratings reflect the strategic location of DMT’s tollway, low operating risk, the lengthy remaining period of its concession, and the predetermined toll rate according to concession agreement. These strengths are partially offset by the historic volatility of traffic on DMT’s tollway, concentration risk on a single toll road, and competition with free roads. The uncertainties over the government’s policies of future plans for Thailand’s transportation network could raise a concern. The “stable” outlook reflects the expectation that there will be no significant changes in the competitive environment or the economy which would hurt DMT’s operating performance. TRIS Rating’s assumption does not include any large investment for new infrastructure projects.
Founded in 1988, DMT constructed and now operates a 21-kilometer (km.) elevated tollway running from Din Daeng to the National Memorial Monument. The tollway was constructed under a Build-Transfer-Operate (BTO) concession granted by the Department of Highways (DOH). In 2007, the latest amendment to the concession agreement was concluded to resolve all pending issues including the toll fee adjustment. For the remaining life of the concession, the toll rates have been pre-approved. The toll fee is fixed with increments every five years. In addition, the concession period was extended from the initial maturity date in 2014 to 2034. DMT's route is a part of the Uttaraphimuk Elevated Tollway (UET) which is the gateway to the Northern and Northeastern regions. The UET was constructed as a six-lane elevated road situated above the Vibhavadi-Rangsit (V-R) highway.
An elevated tollway is one alternate transportation route used to mitigate the traffic congestion on the free road and, at the same time, competed against each other. The traffic volume on the elevated expressway generally grows as demand for transportation increases, especially when the nearby communities are growing. However, since the tollway charges a toll fee, the traffic volume has shown some sensitivity to price and event risks.
In 2013, DMT's total traffic volume increased by 12% compared with the previous year. The rise was credited to the boom of low cost airlines and the government’s tax rebate policy for first car buyers. However, for the first half of 2014, total traffic volume slightly declined by 0.5% year-on-year (y-o-y), impacted by the political turmoil and an economic slowdown. In the third quarter of 2014, total traffic volume started to recover, rising by 5.9% y-o-y, since the new Cabinet has been appointed and consumer confidence showed improving trend. As there were no changes in the toll fees, DMT’s revenue grew at a pace equal to the increase in traffic volume.
DMT’s financial profile has improved. DMT’s operating profit margin increased from 75.3% in 2012 to 77.5% in 2013 and 78.5% in the first six months of 2014. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio rose from 4.1 times in 2012, to 4.8 times in 2013, and to 5.5 times in the first six months of 2014. The ratio of funds from operations (FFO) to total debt has improved, rising from 11.8% in 2012, to 16.9% in 2013, and to 18.2% (annualized, from the trailing 12 months) at the end of June 2014. DMT’s total debt to capitalization ratio declined from 54% at the end of December of 2012 to 51% at the end of June 2014, following the redemption of its maturing debentures.
In the medium term, TRIS Rating expects that DMT’s operating performance will continue to improve as the traffic volume grows. The toll rate is set to increase in December 2014. From the past experience, the traffic volume was affected by changes in the toll rates which could be offset by price increase. Hence, the price sensitivity of the commuters needs to be monitored. The company has healthy liquidity as its FFO is growing which is sufficient to meet DMT’s working capital needs and maintenance expenditures. TRIS Rating does not expect any new investment in the near term as the company has not indicated any concrete plan. However, DMT’s leverage will not decline significantly in the medium term as the company plans to maintain a high dividend payout ratio.
Don Muang Tollway PLC (DMT)
Company Rating: A-Issue Ratings:
DMT14DA: Bt1,315 million senior unsecured debentures due 2014 A-
DMT156A: Bt250 million senior unsecured debentures due 2015 A-
DMT15DA: Bt1,400 million senior unsecured debentures due 2015 A-
DMT16NA: Bt400 million senior unsecured debentures due 2016 A-
DMT178A: Bt250 million senior unsecured debentures due 2017 A-
DMT17DA: Bt1,478 million senior unsecured debentures due 2017 A-
DMT20DA: Bt1,140 million senior unsecured debentures due 2020 A-
Up to Bt800 million senior unsecured debentures due within 2016 A-
Rating Outlook: Stable