Bangkok--4 Apr--Moody's
Moody's Investor Service has withdrawn its B2 senior unsecured rating for the US$ bonds previously planned by TRUE
Corporation Ltd. (TRUE). The withdrawal follows the company's decision not to proceed with the issuance. At the same time, Moody's has affirmed TRUE's Ba3 corporate family rating with a stable outlook.
"The affirmation of the Ba3 corporate family rating reflects Moody's view that TRUE's decision to withdraw the issuance does not materially constrain the group's liquidity," says Anna Ho, a Moody's Assistant Vice President/Analyst.
"However, refinancing risk will rise moderately as scheduled debt repayments remain high for the next 12-18 months," says Ho, also Moody's lead analyst for the company, adding, "TRUE intends to refinance part of this due debt by issuing in the local bond market and continues to de-leverage from its positive free cash flow. Failure to pursue such a plan would be negative for the rating."
The Ba3 corporate family rating continues to reflect TRUE's a) unique integrated business model, b) leading position in BMA (Bangkok Metropolitan Area) for fixed-line and broadband services, c) growing cellular revenue, via True Move (formerly TA Orange), and d) projected debt reduction, backed by positive free cash flow in the next 2 years.
On the other hand, such credit strengths are offset by the increasing competitive character of the cellular market and TRUE's relatively high financial leverage, and which together may impair its ability to fully execute its business plan.
"The rating outlook is stable, reflecting Moody's expectation that TRUE will reduce its leverage with positive free cash flow and arrange appropriate refinancing for its maturing debt in the next 6-12 months.
Failure to do so would prompt an outlook change to negative," says Ho.
Upward rating pressure could emerge if TRUE manages well its growth strategy in cellular operations, resulting in sustainable EBITDA margins at current levels and growth in free cash flow to reduce debt as planned.
Key indicators for such improvements include adj. RCF/adj. debt in the range of 20-25% and FFO interest coverage above 4-5x.
On the other hand, the ratings could undergo downward pressure if a) TRUE experiences a significant deterioration in market share and ARPU - a scenario which could result from greater competition and further liberalization -- thereby pressuring EBITDA margins below 35%, or b) TRUE fails to reduce financial leverage, such that adj. RCF/adj. falls under 10% and FFO interest coverage declines below 2.5x, or c) the UBC acquisition leads to a material rise in debt, and which is beyond Moody's expectation, and if the long-term refinancing for its bridging facility contains an aggressive repayment schedule which substantially weakens UBC's ability to meet scheduled debt maturities, or d) refinancing risk increases.
Headquartered in Bangkok, Thailand, TRUE, formerly called TelecomAsia, is an integrated provider of fixed line, broadband, internet, mobile services and lately cable TV (via the UBC acquisition) in Thailand.
Revenue for FY2005 reached approx. Bt44 bln (U$1.1 bln). Key shareholders include the CP Group (34%), Kfw (17%), HSBC and Morgan Stanley (7.5%).
True Move had market share of 14.6% at end-2005
Hong Kong
Anna Ho
Asst Vice President - Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
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