Bangkok--19 May--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned an 'A(tha)' National Long-Term Rating to Thailand-based BTS Group Holdings Public Company Limited (BTS Group). The Outlook is Stable.
Key Rating Drivers
Leading Mass Transit Operator: BTS Group has a strong business position in Bangkok's mass-transit sector. The company operates BTS Skytrain network, which covers key commercial and strategic locations in Bangkok including Sukhumvit, Silom and Sathon, and handled around 70% of ridership in Bangkok's rail mass transit system in 2015.
Solid Media Operations: The group's media operations related to advertising space on the Skytrain network and elsewhere will continue to generate strong earnings and cash flows in the medium term. The media business' prospects are supported by the increasing ridership and expanding mass transit network in Bangkok. The group's unique operations allow the company to offer cross-platform advertising over mass transit, office buildings, billboards, street furniture and airports. The Skytrain-related media operations are generally stable, which help to mitigate the weak near-term outlook for the overall media industry in Thailand.
Steady Cash Generation: BTS Group's mass transit (excluding new mass transit lines) and media businesses are highly cash flow generative and their capex requirements are low. These are the two main businesses that generate cash to support group capex, including investments in new mass transit lines, property and service businesses in the medium term. Furthermore, there is little debt at its media operations, which are held via VGI Global Media Public Company Limited (VGI), resulting in strong dividend flows. BTS Group receives dividends from its direct 23.3% ownership in VGI and an annuity-like dividend flow from its 33.3% interest in BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF).
More Property Exposure: The above credit strengths of the company are, however, partly offset by the relatively higher-risk property business of the group and the significant investments in property projects over the next few years, which have added to financial indebtedness at the BTS Group level. However, Fitch recognises that the company's strategy of focusing on condominium projects in prime locations that are close to mass transit stations, and involving experienced joint-venture partners should help reduce the execution risks for these projects.
Large Investment; Negative FCF: BTS Group has planned some THB10.5bn of investments in the next three years, around 40% of which is for its property and service businesses. In addition, another THB15bn of outflow is likely for planned acquisitions and equity injections or loans to associates and property JVs during this period. These will lead to large negative FCFs over the next three years.
Leverage to Increase: BTS Group's credit metrics will deteriorate over the next three years as a result of high capex and investments. Fitch expects BTS Group's FFO-adjusted net leverage to be between 2.5x and 3.7x in the financial year ending 31 March 2017 (FY17) to FY20 (9MFY16: net cash position). The Stable Outlook on the ratings is based on Fitch's expectation that the company's financial profile will improve from FY20, barring any significant increase in its investment plans.
KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Revenue to drop in FY16 after BTS Group terminated all contracts for advertising space with modern trade retailers; revenue to recover from FY17
- EBITDAR margin of around 30%-33% over the next three years
- The mass transit business to be granted operation and maintenance contracts for green line extensions
- THB10.5bn of capex over FY16-FY18, in addition to the loan/equity injection to associates and JV property projects
- High dividend payment in FY16 and FY17
Rating Sensitivities
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- BTS Group maintaining FFO-adjusted net leverage below 2.5x on a sustained basis;
- The company reducing its overall business risks by managing exposure to its higher-risk property development operations
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Larger than expected capex and investment or weaker earnings leading to FFO-adjusted net leverage maintained above 3.5x on a sustained basis;
- A significant increase in business risks