Bangkok--21 Nov--Moody's
Moody's Investors Service has today downgraded the B1 corporate family and senior unsecured bond ratings of True Corporation Public Company Limited ("True Corp") and its 75.3%-owned subsidiary, True Move Company Limited ("True Move"), to B2. The outlook on all the ratings remains negative.
"This action follows the recent announcement of True Move's Q3 2008 results which, in Moody's view, raise concerns over the company's ability to comply with its existing covenants at the next test date in December 2008, particularly with regard to the net debt/EBITDA covenant under its bank facilities," says Laura Acres, a Moody's Vice President.
"In addition, Moody's expects True Move's FY2008 results to be below our expectations to the extent that the 5.0x adjusted debt/EBITDA downward rating trigger is realised, thereby highlighting the company's fragile liquidity position," adds Acres, also Moody's Lead Analyst for the True Group.
Given True Move's deteriorating performance, Moody's is also concerned that True Corp may be required to inject funds into True Move under the Sponsor Support Agreement. This will clearly reduce available funds for investment in the broadband business or for debt repayment.
Moody's notes True Corp's recently announced Bt19.5 billion rights issue and the subsequent indication of support from key shareholders. However, the rating agency remains concerned about the company's ability to raise these funds given current poor market conditions and the premium to current market prices.
"While we have not factored any equity inflows into our models, the generation of such funds will alleviate pressure on True Corp and True Move's cash flow positions, although there is no certainty that the injection of monies will help to turn around the deteriorating operating profile of True Group's wireless business," adds Acres.
Given that the outlook is negative, it is unlikely that either of the companies' ratings will be upgraded in the near term. However the outlook could revert to stable should True Corp successfully raise monies through the rights issue to reduce leverage.
In the longer term, Moody's would look for True Corp and True Move to consistently achieve their projected results and comply with financial covenants. The rating agency would also look for the underlying performance of the two companies to improve, and specifically for adjusted debt/EBITDA to fall below 4.5-5.0x on a consistent basis for True Move and (EBITDA-capex)/interest to increase above 1.0x on a consistent basis.
The ratings for True Corp and True Move could experience further downward pressure should True Move fail to negotiate anticipated covenant waivers, or should the latter's fundamental business performance deteriorate further.
Headquartered in Bangkok, True Corp is an integrated provider of fixed-line, broadband, internet, mobile services and cable TV in Thailand.
True Corp is listed on the Thailand Stock Exchange and the CP Group is the major shareholder with approximately 30% shareholding. Its wireless business is predominantly conducted through its 75.3%-owned subsidiary, True Move, Thailand's third largest mobile telecommunications operator.
Its pay TV business is conducted through 91.8%-owned True Visions Public Company Limited, which is currently the only nationwide provider of pay television services in the country.
Hong Kong
Laura Acres
Vice President - Senior Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
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Singapore
Tony Tsai
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
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