TRIS Rating affirms the company rating on True Corporation PLC (TRUE) and the ratings on TRUE?s outstanding senior unsecured debentures at ?BBB+?, with a ?stable? outlook. TRIS Rating also affirms the rating on TRUE?s partially guaranteed debentures at ?A-?, based on the credit profiles of both the issuer (TRUE) and the guarantor, Kasikornbank PLC (KBANK) (rated ?AA+/Stable? by TRIS Rating*). KBANK?s partial guarantee covers 45% of the debentures? outstanding principal and accrued interest.
At the same time, TRIS Rating assigns the rating of ?BBB+? to TRUE?s proposed issue of up to THB13 billion in senior unsecured debentures. The proceeds from the new debentures will be used to refinance its existing debts and/or fund its working capital needs.
The ratings reflect TRUE?s strong business profile as a leading integrated telecom company in Thailand, its strong market position in both wireless communications and broadband internet services, as well as its satisfactory operating results. The ratings also embed our expectation of the ongoing support TRUE receives from the Charoen Pokphand Group (CP Group), its major shareholder, and China Mobile International Holdings Ltd. (China Mobile), its strategic partner. However, the ratings are weighed down by TRUE?s high-leveraged balance sheet, intense competition in the industry, and the lingering effects of the Coronavirus Disease 2019 (COVID-19) pandemic.
For the first nine months of 2021, TRUE?s operating results were in line with TRIS Rating?s expectation. Amid the ongoing COVID-19 fallouts, its total revenue reached THB102.2 billion, a slight increase of 0.5% year-on-year (y-o-y). Service revenues, excluding interconnection charges (IC), were relatively flat y-o-y at THB79.7 billion. Revenues were driven by strong growth in the broadband internet business, but weighed down by economic slowdown and the lockdown measures which put pressure on the mobile prepaid segment and the pay television (TV) business.
As of September 2021, TRUE?s mobile phone network services business, under the ?TrueMove H? brand, had 32 million subscribers, up from 31.7 million subscribers at the end of June 2021. Service revenues, excluding the IC, in the first nine months of 2021 were THB59.9 billion, a slight decline of 0.6% y-o-y. The industrywide mobile service revenues and average revenue per user (ARPU) remained under pressure from competition and a slowdown economy which affected consumer spending. Given the COVID-19 fallout, total service revenues of the mobile operators in the industry in the first nine month of 2021 dropped by 1.7% y-o-y. TrueMove H sustained its strong market position as the second largest wireless telecommunication provider in Thailand, holding a 31.5% service revenue market share.
The revenue from TRUE?s broadband internet service in the first nine months of 2021 totaled THB22 billion, up by 9.7% y-o-y, bolstered by the surge in demand for online connectivity and home internet access. As of September 2021, TRUE?s total number of broadband internet subscribers was 4.5 million, recording net adds of 0.135 million subscribers in the third quarter of 2021. Despite declining ARPU, we expect TRUE?s revenue from broadband internet service will continue to grow in 2021.
Total service revenue from the pay TV services in the first nine months of 2021 dropped by 6.7% y-o-y to about THB7.4 billion, due to softened subscription, lower consumer spending in the hotel segment, as well as the increasing trend toward ?over-the-top? (OTT) and online platforms. However, the revenue from advertising, entertainment, and others rebounded by 13% y-o-y. We expect the reopening of the country and the resumption of social activities will help the pay TV business recover gradually.
For the first nine months of 2021, TRUE?s earnings before interest, taxes, depreciation, and amortization (EBITDA) were THB45.6 billion, up by 5% y-o-y. The improved profitability is attributed to the company?s cost control efforts, digital transformation, lower selling expenses, and improved operational efficiency. The EBITDA margin rose to 44.2% from 40.6% in 2020. Funds from operations (FFO) reached at THB31 billion.
TRUE?s credit ratings have been constrained by its debt-heavy financial risk profile. As of September 2021, its interest-bearing debt totaled THB244.5 billion, slightly down from THB252.8 billion at the end of June 2021. Adjusted net debt was THB416 billion. The adjusted net debt to EBITDA ratio was 7 times while the FFO to adjusted net debt ratio was 9.5%. The adjusted net debt to net capitalization ratio was 82%. Based on the capital expenditures required for network investments, we anticipate TRUE?s leverage will remain high over the medium term, with a major portion of the debt coming due in the next 12-18 months to be refinanced.
As of September 2021, 48% of TRUE?s consolidated debt was at subsidiary level and unsecured. Its priority debt level is less than the threshold of 50% according to TRIS Rating?s ?Issue Rating Criteria?. We view its unsecured creditors as not being significantly disadvantaged with respect to claim against its assets. In effect, we maintain the ratings on TRUE?s senior unsecured debentures at the same level as its company rating.
On 22 November 2021, Total Access Communication PLC (DTAC) and TRUE announced their intention on a potential merger. TRIS Rating is assessing the potential impact of the proposed merger on the company and issue ratings assigned to TRUE. The assessment is pending on detailed information about the merger, particularly the would-be corporate structure of the combined businesses and business direction post-merger. We note that the merger is subject to a number of hurdles, including approvals of the respective shareholders, consent from creditors, and regulatory approvals -- particularly approval from the National Broadcasting and Telecommunications Commission (NBTC).
RATING OUTLOOK
The ?stable? outlook embeds our expectation that TRUE will maintain its strong market position in the core businesses and continue to deliver satisfactory operating performance. We also expect TRUE to receive ongoing support from the CP Group and China Mobile.
RATING SENSITIVITIES
The ratings could be downgraded if TRUE?s operating performance deteriorates materially, pushing the adjusted FFO to debt ratio to fall below 5% on a sustained basis. A rating upgrade could occur if TRUE significantly improves its profitability and capital structure.
There is still a number of ongoing litigations that will likely take time to resolve. A downward revision to the ratings could occur if there are new developments on these pending legal issues that suggest potential material adverse effects on TRUE?s financial profile.
RELATED CRITERIA
- Issue Rating Criteria, 15 June 2021
- Group Rating Methodology, 13 January 2021
- Rating Methodology ? Corporate, 26 July 2019
- Key Financial Ratios and Adjustments, 5 September 2018
True Corporation PLC (TRUE)
Company Rating: BBB+
Issue Ratings
TRUE221A: THB12,246 million senior unsecured debentures due 2022 BBB+
TRUE221B: THB100 million senior unsecured debentures due 2022 BBB+
TRUE224A: THB5,922 million senior unsecured debentures due 2022 BBB+
TRUE225A: THB300 million senior unsecured debentures due 2022 BBB+
TRUE227A: THB945 million senior unsecured debentures due 2022 BBB+
TRUE228A: THB5,799.10 million senior unsecured debentures due 2022 BBB+
TRUE228B: THB830 million senior unsecured debentures due 2022 BBB+
TRUE232A: THB4,330 million senior unsecured debentures due 2023 BBB+
TRUE232B: THB2,875 million senior unsecured debentures due 2023 BBB+
TRUE237A: THB6,394.60 million senior unsecured debentures due 2023 BBB+
TRUE239A: THB4,800 million senior unsecured debentures due 2023 BBB+
TRUE23NA: THB7,438.90 million senior unsecured debentures due 2023 BBB+
TRUE245A: THB4,415.50 million senior unsecured debentures due 2024 BBB+
TRUE248A: THB11,841.60 million senior unsecured debentures due 2024 BBB+
TRUE24OA: THB1,325 million senior unsecured debentures due 2024 BBB+
TRUE24OB: THB6,212.90 million senior unsecured debentures due 2024 BBB+
TRUE24NA: THB4,268.70 million senior unsecured debentures due 2024 BBB+
TRUE251A: THB3,994.20 million senior unsecured debentures due 2025 BBB+
TRUE252A: THB4,207.70 million senior unsecured debentures due 2025 BBB+
TRUE258A: THB650 million senior unsecured debentures due 2025 BBB+
TRUE25OA: THB4,247.90 million senior unsecured debentures due 2025 BBB+
TRUE25NA: THB2,486.60 million senior unsecured debentures due 2025 BBB+
TRUE261A: THB7,130.30 million senior unsecured debentures due 2026 BBB+
TRUE262A: THB3,865.20 million senior unsecured debentures due 2026 BBB+
TRUE26OA: THB4,854.70 million senior unsecured debentures due 2026 BBB+
TRUE26NA: THB5,805.80 million senior unsecured debentures due 2026 BBB+
TRUE272A: THB6,636.60 million senior unsecured debentures due 2027 BBB+
TRUE28OA: THB7,184.50 million senior unsecured debentures due 2028 BBB+
TRUE22NA: THB8,330 million partially guaranteed debentures due 2022 A-
Up to THB13,000 million senior unsecured debentures due within 6 years BBB+
Rating Outlook: Stable