Bangkok--20 Apr--Fitch Ratings
Fitch Ratings has today upgraded Thailand-based Total Access Communication Plc’s (“DTAC”) Long-term Foreign Currency Issuer Default Rating (“IDR”) to ‘BB+’ from ‘BB’ and National Long-term rating to ‘A(tha)’ from ‘A-(tha)’ (A minus(tha)). Both ratings have been removed from Rating Watch Positive (“RWP”). The Outlook on the ratings is Stable. The agency has also upgraded DTAC’s National Short-term rating to ‘F1(tha)’ from ‘F2(tha)’. DTAC’s ratings were placed on RWP on October 25, 2005, following an announcement by Telenor ASA of Norway (“Telenor”) that it would acquire a majority stake and control in DTAC. Telenor became one of DTAC’s major shareholders in mid-2000 through the purchase of stakes in DTAC and DTAC’s largest shareholder, United Communication Industry Plc. (“UCOM”). With its recent purchase in late 2005 of a 39.9% interest in UCOM from the founding family and its subsequent tender offers for UCOM and DTAC shares, Telenor lifted its aggregate economic interest in DTAC to 69.3% from 40.3%.
The ratings upgrade is supported by Telenor’s higher level of commitment to DTAC which is expected to result in an improvement in DTAC’s financial flexibility and maintenance of a more conservative financial profile going forward. The agency notes that Telenor now has more flexibility in terms of providing financial support to DTAC either in the form of equity injection or winding back dividend payments (if needed). Nonetheless, DTAC is expected to remain self-funded for the foreseeable future due to its improved financial position. DTAC is Telenor’s largest acquisition in Asia and it ranks second in terms of EBITDA contribution outside Norway. Full management and ownership control should result in a clearer strategy and reinforce Telenor’s long-term commitment. The backing by a stronger foreign operator mitigates the risks associated with intensified competition and technological changes. The ratings upgrade is further supported by DTAC’s ability to maintain its relatively strong financial profile with a policy to further reduce its financial leverage in the medium term.
Despite aggressive price cutting in 2005, DTAC was able to defend its market share and report strong operating performance. In 2005, the company reported 11% and 8% yoy increases in service revenue and EBITDA, respectively. Its stronger operating performance was underpinned by higher prepaid and value-added service revenues. Meanwhile, large capex and working capital requirements consumed most of its funds from operations, which caused its free cash flow to turn negative in 2005. At end-2005 DTAC’s net debt/EBITDA ratio was almost unchanged at 2.4x.
DTAC is the second-largest cellular operator in Thailand with a 28.5% market share and a 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. Other credit concerns include uncertainties of the regulatory environment of Thailand’s telecom industry, particularly the recent draft regulation on foreign-domination.
Contact: Orawan Karoonkornsakul, Soamsiri Chadavadh, Vincent Milton; Bangkok, Tel: +662 655 4755.