Bangkok--31 Mar--Moody's
Moody's Investors Service has today upgraded its corporate family and senior unsecured rating for Total Access
Communications Public Co Ltd (TAC) to Ba1 from Ba2 with a positive outlook. This concludes the review for possible upgrade commenced on 21 October, 2005.
The rating upgrade reflects TAC's improving and strong financial and operational profiles, which well position it to absorb the evolving competitive pressures evident in the domestic cellular market. The positive outlook reflects Moody's expectation that TAC will execute its business growth plan in a conservative manner, and such planned growth will potentially further strengthen its subscriber base and operating cash flow.
The ratings of TAC reflect the application of Moody's rating methodology for government-related issuers ("GRIs") in view of Telenor ASA's (Telenor - a GRI itself) 69.3% economic exposure in the company. In accordance with the rating methodology, TAC's ratings reflect the combination of the following inputs:
- Baseline credit assessment (BCA) of 5 (on a scale of 1 to 6, where 1 represents lowest credit risk)
- the A2 foreign currency rating of Telenor ASA
- low dependence
- low support
"The BCA of 5 reflects TAC's position as the second largest telecommunications operator in Thailand with 28% market share, its established brand and extensive network coverage, and its solid financial profile," says Moody's lead analyst Anna Ho, adding, "the BCA further considers the ongoing subscriber growth evident in the Thai cellular sector and from which TAC - as one of its two leading operators - will stand to benefit."
Moody's also believes TAC will benefit from Telenor's presence as a strategic shareholder, its technical and operational expertise, and management guidance. However, these strengths are tempered by the increasingly competitive nature, as penetration rises, of the cellular market in Thailand, the potential for more aggressive pricing strategy by
key competitors, and TAC's large capex plan, including negative free cash flow in the coming year.
Low dependence reflects the fact that TAC is predominately operating in Thailand and contributes moderately to the EBITDA of Telenor, which itself has a relatively diversified income stream. Low support reflects Moody's belief that Telenor has the flexibility to divest its stake in TAC, if political or regulatory issues seriously affect its investment.
At the same time, Moody's has considered TAC's strategic fit with Telenor and the higher level of economic exposure to 69.3% from 40.3%.
TAC's BCA is the key driver of its rating. Its BCA and therefore the rating will experience an upward trend if a) TAC demonstrates its ability to execute its business plan and generate positive free cash flow on a sustainable basis; and b) improves it liquidity profile by arranging appropriate refinancing for its maturing debts in 2006 and manages well
its debt maturity profile.
In terms of possible downward rating pressure, the rating is unlikely to be lowered, given the current positive outlook. However, the outlook could return to stable if competition intensifies, leading to lower EBITDA margins, and TAC therefore fails to generate sustainable positive free cash flow.
TAC, headquartered in Bangkok, is the second largest cellular operator in Thailand with 28% market share or 8.7 mln subscribers at end-2005. The company has a concession from CAT Telecom Public Company Limited (formerly known as Communications Authority of Thailand "CAT") for the provision of cellular radio communication services. This expires in 2018.
Telenor ASA, headquartered in Oslo, Norway, is an international provider of telecommunications, data and media communication services, with a particularly strong focus on mobile, internet and broadband services.
Hong Kong
Anna Ho
Asst Vice President - Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
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