TRIS Rating Assigns “A/Stable” Rating to Senior Debt Worth Up to Bt1,000 Million of “BECL”

TRIS Rating has assigned the rating of “A” to the proposed issue of up to Bt1,000 million in senior debentures of Bangkok Expressway PLC (BECL). At the same time, TRIS Rating has affirmed the company and current issue ratings of BECL at “A”. The outlook remains “stable”. The proceeds from the new debentures will be used to finance a new expressway project. The ratings reflect the stability and reliability of the company’s operating cash flows, derived from a solid track record of traffic volume on BECL’s expressway network. These strengths are partially offset by the uncertainty over future government transportation policies and the sizable investments required for any new expressway concession. The “stable” outlook bases on TRIS Rating’s expectation that BECL will continue to deliver solid operating performance and reliable cash flows. During the investment period, the company is expected to employ cautious financial policies, in order to maintain its credit quality.

BECL built and operates the elevated Si Rat Expressway (the Second Stage Expressway System - SES) and the Udon Ratthaya Expressway (Bang Pa In-Pak Kret Expressway), known as SES Sector C+. Both expressways were established under 30-year Build-Transfer-Operate (BTO) concessions awarded by the Expressway Authority of Thailand (EXAT). The SES, the extension of the SES (Sector D), and the Sector C+ concessions will expire in 2020, 2027, and 2026, respectively. The SES is linked to the Chalerm Mahanakorn Expressway (the First Stage Expressway System — FES), which was constructed and has been operated by the EXAT. The connection of both expressways creates a comprehensive network which provides an alternative to the heavily congested free roads within central Bangkok and for the route travelling north. BECL shares toll revenue with EXAT on the FES and SES Sector A and B. From March 2011 until the end of the concession, the revenue sharing ratio was 40% for BECL and 60% for EXAT. The toll revenues from the suburban network, consisting of Sector D, C, and C+, are not required to be shared with EXAT. In addition, BECL was awarded the concession for the Si Rat-Western Bangkok Outer Ring Road Expressway (SOE). The concession is a BTO concession, covering 30 years, including a construction period of up to 48 months. BECL will receive 100% of the tolls it collects. The total project cost is Bt25,491 million. The construction began on 15 December 2012 and is scheduled to be completed in December 2016.

BECL’s strong business profile is supported by a steady growth in traffic volume on BECL’s network. Over the past 10 years, the compound annual growth rate of the average daily traffic volume was 3.1%. In September 2013, toll rates on the FES and SES rose by Bt5-Bt10, depending on the type of vehicle. The average daily traffic volume was affected, falling by 2% month-on-month (m-o-m), from 1.125 million vehicles per day in August 2013 to 1.099 million vehicles per day in September 2013. However, daily revenue increased 4.6% m-o-m in September 2013 due to the greater impacted of price increase. The traffic volume for the first nine months of 2013 rose by 2% year-on-year (y-o-y). BECL will likely report minimal growth in traffic volume for the full year. TRIS Rating expects that the toll rate increase will slightly lower traffic volume but the effect will be short term. Overall, toll road usage looks set to grow moderately, despite a weaker economy and rising household debt. The factors supporting increases in toll road usage are the increase in the number of cars registered in Bangkok and the vicinity, expansion of residential property in the outskirts area, and rises in economic activity.

BECL’s financial strength is average, which was weighed by its healthy profitability derived from operating leverage and the large amounts of debt required for capital investment. Toll revenue grew by 5.8% in 2012 and 2.3% in the first six months of 2013, compared with the same period a year earlier. TRIS Rating expects that revenue will continue to grow by around 2%-4% annually over the next three years. For the first half of 2013, the funds from operation (FFO) to total debt ratio was 23.97% (annualized from the trailing 12 months). This level indicates strong liquidity. BECL is expected to generate FFO of Bt5,000-Bt5,600 million per annum over the next three years so as to support its financial obligations, planned capital expenditures, and dividend payments. The total debt to capitalization ratio slightly increased to 48.79% at the end of June 2013. TRIS Rating expects that the company’s financial leverage will further increase in the medium term due to the investment needed for the SOE project. Approximately 75% of the total project cost, or about Bt19,000 million, will be financed with long-term debt. The remaining balance will be funded by its operating cash flow. The debt to capitalization ratio is expected to peak at around 60% while the new expressway is under construction.

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