Bangkok--May 31--Fitch Ratings
Fitch Ratings, the international rating agency, has today assigned a Long-term foreign currency rating of ‘BB’ with a Stable Outlook to Total Access Communication Pcl (“DTAC”). At the same time, the agency has upgraded DTAC’s National Long-term rating and that of its Bills of Exchange to ‘A-(tha)’ (A minus(tha)) from ‘BBB+(tha)’ while affirming the National Short-term rating at ‘F2(tha)’.
The upgrade of DTAC’s National rating follows the release of strong 2004 and 1Q05 results which showed a substantial improvement in its financial position. DTAC’s strong operating performance has been supported by lower price competition and tight control over its operating costs over the past two years, resulting in positive free cash flow, due also to lower capex. The ratings reflect DTAC’s position as Thailand’s second largest cellular operator with extensive network coverage and strong brand recognition underpinning its 29% market share at 1Q05, its ability to defend market share despite greater industry competition following an increase in the number of operators since 2002, and the operational support provided by its 30% shareholder Telenor.
The ratings also take into account several weaknesses including the risk of price competition becoming more severe, DTAC’s higher regulatory cost structure and the sharp rise in funding costs due to a flawed derivative strategy which was originally designed to reduce fixed funding costs. In 2002, DTAC hedged most of its debt to lower interest costs. Due to rising interest rates in 2004, it closed out some of its positions leaving some 60% of DTAC’s debt under floating rate swap agreements in 1Q05. Nonetheless, average funding costs are still expected to rise to around 10% in 2005, from 6% in 2004. Though issues surrounding concession conversion and asset ownership remain unresolved, the establishment of an independent regulator - National Telecommunications Commission - and its mandate to create a more level playing field should improve the regulatory framework. The Stable Outlook for the ratings is based on DTAC’s likely continued strong earnings performance and declining leverage, notwithstanding increased price competition.
Robust operations and relatively low capex in 2004 and 1Q05 have improved DTAC’s net debt/EBITDA ratio to 2.3x at 1Q05 from 3.6x at FYE03. While its EBITDA/interest expense ratio improved to 6.1x in 2004, the ratio weakened slightly to 4.4x in 1Q05 due to rising interest costs from DTAC’s exposure to floating rate debt. Although DTAC’s short-term debt accounted for 20% of its total debt of THB37bn at 1Q05, it is expected to rise significantly by FYE05 as almost half of its remaining debt is due in 2006. That said, DTAC’s refinancing risk should be mitigated by improving cash flows and manageable capex that are expected to bring further improvement in DTAC’s financial profile. At end-1Q05, DTAC has undrawn committed credit facilities of about THB6bn.
Fitch’s rating definitions are available on the agency’s free of charge website, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the free site for seven days. The ratings above have been initiated by Fitch as a service to investors.
CONTACT: Bangkok; Tanawat Roongtanapirom, CFA, Analyst, Corporates, Bangkok, +662 655 4758; Orawan Karoonkornsakul, CFA, Director, Corporates, +662 655 4766; Vincent Milton, Managing Director, +662 655 4759, Hong Kong; Jonathan Cornish, Director, +852 2263 9901.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with sub- or low-investment grade international sovereign ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable. End.