Bangkok--Oct 26--Fitch Ratings
Fitch Ratings today placed Thailand-based Total Access Communication Plc’s (“DTAC”) Long-term foreign currency rating of ‘BB’ and National Long-term rating of ‘A-(tha)’ (A minus(tha)) on Rating Watch Positive (“RWP”). This follows news that Telenor ASA of Norway (“Telenor”) would raise its control of DTAC through a share purchase in its largest shareholder, United Communication Industry Plc. (“UCOM”), from the founding family.
The rating action is based on the expected increase in the level of both operational and financial support to DTAC from Telenor. The latter’s move complements its strategy to seek long-term earnings growth, stability and diversification through cellular investments in Asia. The resolution of the RWP is subject to further discussion with the company on the implications of this transaction and how DTAC’s credit profile will be affected. The agency envisages that Telenor’s increased exposure to DTAC demonstrates the higher level of its commitment to the company. This should enable DTAC to take advantage of Telenor’s larger scale of operation and stronger financial position to better prepare itself for the expected increase in competition in the Thai cellular industry. Telenor became one of DTAC’s major shareholders in mid-2000 via its agreement to purchase 29.9% of DTAC and 24.9% of UCOM with its employees taking key management posts as co-CEO and CFO. Regarding its other cellular investments in Asia, Telenor also owns 61% in DiGi.Com in Malaysia, 62% in GrameenPhone in Bangladesh and 100% in Telenor Pakistan with recent investment interests reported in Vietnam and neighbouring countries.
Under the transaction, Thai Telco Holding (“TTH”), which is 49% owned by Telenor’s wholly-owned subsidiary Telenor Asia, has signed an agreement with the Bencharongkul Family to purchase the latter’s 39.9% shareholding in UCOM at a total cost of THB9.2 billion. With UCOM holding 41.6% in DTAC, the share purchase (once completed) will in effect increase Telenor’s direct and indirect holdings in DTAC to 48.3% from 40.2%. As a result of the acquisition, Telenor will consolidate both DTAC and UCOM in its financial statements — post consolidation, DTAC is expected to boost Telenor’s EBITDA by around 12% based on the latter’s last-twelve-month results. Upon completion of the transaction, TTH is required to launch a Mandatory Tender Offer for all outstanding shares of UCOM, and along with Telenor Asia, a Chain Principle Offer for all of the shares of DTAC not held by UCOM or Telenor.
DTAC is the second-largest cellular operator in Thailand with a 28% market share and strong brand recognition as well as healthy earnings performance. The company, however, is facing intensifying competition and has been disadvantaged by its higher regulatory cost structure. Robust operations and relatively low capex in 2004 and 1H05 have improved DTAC’s last-twelve-month net debt/EBITDA ratio to 2.2x at 1H05 from 3.6x at FYE03. While its EBITDA/interest expense ratio improved to 6.1x in 2004, the ratio weakened to 4.5x in 1H05 due to rising interest costs from DTAC’s exposure to floating interest rates.
CONTACT: Orawan Karoonkornsakul, Vincent Milton; Bangkok, +662 655 4755, Jonathan Cornish; Hong Kong, +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.
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