TRIS Rating Assigns “BBB+/Stable” Rating to Senior Unsecured Debt Worth Up to Bt11,500 Million of “TRUE”

TRIS Rating affirms the company rating on True Corporation PLC (TRUE) and its existing senior unsecured debenture rating at “BBB+” and also affirms the rating on its partially guaranteed debentures at “A-”. At the same time, TRIS Rating assigns a rating of “BBB+” to TRUE’s proposed issue of up to Bt11,500 million in senior unsecured debentures. The company will use the proceeds from the new debentures to refinance its debts coming due.

The ratings reflect TRUE’s competitive strength as an integrated telecom operator with extensive network coverage in mobile services and broadband Internet. Continuously improving performance in the mobile services supports the company’s credit metrics. The ratings also take into account the expectation of continued support from its major shareholders, the CP Group and China Mobile International Holdings Ltd. (China Mobile). These strengths are partially offset by the company’s high level of leverage and the immense competitive pressures TRUE faces in its core business segments.

TRUE’s operating performance for the first nine months of 2018 was in line with TRIS Rating’s expectation. TRUE reported a 2.6% year-on-year (y-o-y) rise in revenue to Bt104 billion, excluding revenue from divesting assets to Digital Telecommunications Infrastructure Fund (DIF). Funds from operations (FFO) were Bt19.4 billion, excluding the effect of the DIF transaction and one-time expenses for asset impairment and expenses related to the termination of a fixed-line concession.

The mobile services segment continues to deliver strong results. Service revenue (excluding interconnection charges or IC) continued to grow at a rate that outpaced the industry. In the first nine months of 2018, TRUE Mobile had 30.9% subscriber market share and 28.9% market share by service revenue. For TrueOnline, the absence of fixed-line service revenue is offset by growth in broadband service revenue.

TRUE’s leverage remains high. At the end of September 2018, the adjusted total debt to capitalization ratio was 63.7%. The adjusted ratio of debt to earnings before interest, tax, depreciation, and amortization (EBITDA) was 5.5 times (annualized, from the trailing 12 months), and the adjusted ratio of FFO to debt was 10.3 times (annualized, from the trailing 12 months).

RATING OUTLOOK

The “stable” outlook is based on TRIS Rating’s expectation that TRUE will sustain its strong market positions and continue to deliver solid operating results in the mobile services and broadband Internet segments. TRIS Rating also expects TRUE to receive ongoing support from its major shareholders, the CP Group and China Mobile. This support strengthens TRUE’s credit profile.

RATING SENSITIVITIES

Any rating upside is unlikely in the next 12-18 months, taking into account TRUE’s debt-heavy capital structure. However, an upgrade could occur if TRUE’s profitability improves significantly. Cash flow protection would rise as a result, reducing the risk from the heavy financial burden. The ratings could be downgraded if TRUE’s operating performance deteriorates, pushing the adjusted ratio of debt to EBITDA above 7 times on a sustained basis.

Several legal uncertainties, such as access charges or excise tax issues, will persist and will take time to be resolved. The ratings could be under downward pressure if the legal outcomes significantly affect TRUE's financial profile.

RELATED CRITERIA

- Key Financial Ratios and Adjustments, 5 September 2018

- Group Rating Methodology, 10 July 2015

- Rating Methodology – Corporate, 31 October 2007

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