TRIS Rating Assigns Company Rating for “BTSG” at “A” with “Stable” Outlook

TRIS Rating Co., Ltd. has assigned the company rating of BTS Group Holding PLC (BTSG)

at “A” with “stable” outlook. The rating reflects BTSG’s 94.6% investment in Bangkok Mass

Transit System PLC (BTSC) which is expected to generate a reliable cash flow stream from

mass transit operation and advertising business. The rating also takes into consideration a

growth potential from property development. However, these strengths are partly constrained

by high leverage, an aggressive investment policy, and the risk inherent in the property

development business.

The “stable” outlook reflects the expectation that the BTS mass transit business will

continue to generate stable and predictable cash flows. However, increasing leverage,

especially at the holding company level, and diversifying into riskier business could put

pressure on the rating of BTSG.

TRIS Rating reported that BTSG was established in 1968 under former name, Tanayong

PLC. The company’s principal business was property development which had not been so active

since the financial crisis in 1997. In 2008, the company expanded to the hospitality

business by establishing a joint venture company, Absolute Hotel Services Co., Ltd., to

provide hotel management services under its own brand, “U Hotel”. Currently, BTSG’s two own

hotels are located in Chiang Mai and Kanchanaburi provinces. In May 2010, the company

acquired a 94.6% stake of BTSC, which the company founded back in 1992. BTSC is a

concessionaire sky train operator and was awarded a 30-year concession by the Bangkok

Metropolitan Administration (BMA) to build and operate the Bangkok Mass Transit System (BTS)

which runs through Silom, Sathorn and Sukhumvit areas. Under the terms of the concession,

BTSC has the right to collect fares and undertake all commercial activities on the system,

including advertising and leasing space, until the expiry of the concession in December

2029. In late 2009, BTSC started its property development business by launching a 4-star

hotel, currently under construction. Therefore, from fiscal year 2011 onward, BTSG’s

business expanded to include the electric train network operation, advertisement, property

development, and hospitality. The company's financial profile will drastically change,

mainly reflecting BTSC's operations. BTSG’s revenue generated during the fiscal year 2008

to 2010 was around Bt800-Bt1,000 million per annum mainly from Baan Aue-Arthorn projects

which were completed. For the first nine months of fiscal year 2011, the company reported

total revenue of Bt4,313 million. BTS became the largest contributor of 64% of the company’s

total revenue, followed by advertisement (23%) and property (11%).

TRIS Rating said, upon the completion of debt restructuring in 2006, BTSG’s capital

structure was strengthened with a significant reduction in debt and an injection of new

equity capital. BTSG’s outstanding debts declined from Bt35,176 million in fiscal year 2006

to Bt4,779 million in fiscal year 2007. The level of debt fell to Bt2,313 million in fiscal

year 2010. However, its debt increased sharply to Bt24,086 million at the end of December

2010 due to the debt-funded acquisition of BTSC and the consolidation of BTSC’s debt. Total

acquisition cost was Bt40,035 million which BTSG paid by share swap, rights offering, and

new debt. Despite the rise in debt, the equity level increased substantially. Thus, the

ratio of debt to capitalization moderately increased from 32.26% in fiscal year 2010 to

39.06% at the end of December 2010. BTSG is expected to report a positive operating income

and funds from operation (FFO) for the first time during the last five years in fiscal year

2011. Cash flow protection will, therefore, improve correspondently.

BTSG is the operating holding company. Its main source of revenue is from BTSC's

operations. Despite a full control of BTSC's business, BTSG's free cash flow to serve its

financial obligation relies heavily on dividends from BTSC. Therefore, the creditors of

BTSG are, to some extent, subordinated to those of BTSC. The issue rating of BTSG is likely

to be lower than its corporate rating, said TRIS Rating. -- End

Company Rating: A Rating Outlook: Stable ? Copyright 2011, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.