TRIS Rating Assigns “BBB+/Stable” Rating to Senior Unsecured Debt Worth Up to Bt12,000 Million of “TRUE”

TRIS Rating affirms the company rating on True Corporation PLC (TRUE) and its existing senior unsecured debenture ratings 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 Bt12,000 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 satisfactory business risk profile, underpinned by its competitive strength as an integrated telecom operator with an established market position and extensive network coverage in mobile and broadband internet services. 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). The ratings are weighed down by the company’s high level of leverage and the intense competition in TRUE's core business segments.

TRUE’s operating performance for the first quarter of 2019 was in line with TRIS Rating’s expectation. The mobile services segment continues to deliver sound results. Service revenue (excluding interconnection charges or IC) continued to grow at a rate that outpaced the industry. For the first three months of 2019, TRUE Mobile services revenue (excluding IC) was Bt19 billion, up by 7.6% year-on-year (y-o-y), compared with the industry average of 1%. Market share by service revenue (excluding IC) was 29%, compared with Advanced Info Service PLC (AIS) at 48% and Total Access Communication PLC (DTAC) at 23%. For TrueOnline, revenue from broadband, internet, and business data services was Bt6.2 billion, a 2.3% y-o-y drop due mainly to the competitive pressure in the broadband service segment.

Overall, TRUE’s service revenue grew by 4.1% y-o-y, to Bt25.8 billion in the first quarter of 2019. Total operating revenue was Bt33.3 billion, a 1.4% y-o-y drop due mainly to lower revenue from network rental and product sales. Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) was Bt11.2 billion, flat from the same period last year. Leverage remains high. For the first three months of 2019, the adjusted ratio of debt to EBITDA was 6.9 times (annualized, from the trailing 12 months), and the adjusted ratio of funds from operations (FFO) to debt was 8.1 times (annualized, from the trailing 12 months). The adjusted total debt to capitalization ratio was 70.1% at the end of March 2019.

RATING OUTLOOK

The “stable” outlook is based on TRIS Rating’s expectation that TRUE will sustain its strong market position 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 revenue sharing or excise tax issues, continue to 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

TRIS Rating Co., Ltd./www.trisrating.com Contact: [email protected], Tel: 0-2098-3000/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2019, 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, without the prior written permission of TRIS Rating Co., Ltd. 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.