TRIS Rating Assigns “BBB+/Stable” Rating to Senior Unsecured Debt Worth Up to Bt8,500 Million of “TRUE”

TRIS Rating affirms the company rating on True Corporation PLC (TRUE) and the ratings on TRUE’s existing senior unsecured debentures at “BBB+” and also affirms the rating on TRUE’s partially guaranteed debentures at “A-”. At the same time, TRIS Rating assigns a rating on TRUE’s proposed issue of up to Bt8,500 million in senior unsecured debentures at “BBB+”. The company intends to use the proceeds from the new debentures to refinance its debts coming due and also use for working capital.

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 TRIS Rating’s 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 its core businesses.

For the first half of 2019, TRUE’s operating performance was in line with TRIS Rating’s expectation. TrueMove H continued delivering sound operating performance whilst TrueOnline faced heightened competitive pressure. For the first half of 2019, mobile service revenue (excluding interconnection charges or IC) was Bt38.6 billion, growing by 6.9% year-on-year (y-o-y) and outpacing the industry average of 2%. On the other hand, revenue from broadband internet and business data services dropped by 2.9% y-o-y to Bt12.4 billion.

For the first half of 2019, TRUE reported a 2.7% increase in overall services revenue to Bt52 billion. However, excluding revenue from divesting assets to the Digital Telecommunications Infrastructure Fund (DIF) in the first half of 2018, its total operating revenue declined by 1% y-o-y, to 67.9 billion, due mainly to lower revenue from network rental and product sales. Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) was Bt23 billion. Leverage remains high. The adjusted ratio of debt to EBITDA was 6.1 times (annualized, from the trailing 12 months) and the adjusted ratio of funds from operations (FFO) to debt was 12.2% (annualized, from the trailing 12 months) for the first six months of 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 businesses. 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, will take time to resolve. The ratings could be under downward pressure if the legal outcomes significantly affect TRUE's financial profile.

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