Bangkok--Nov 11--TRIS
Thai Rating and Information Services (TRIS) announced Tuesday, 11
November 1997 that it has downgraded the 5,000 million baht senior
debentures of United Communication Industry PLC (UCOM) to "BBB+" from "A".
The downgrade is based upon a significant increase in UCOM's debt burden
from the baht depreciation, making it likely to breach the 5,000- million-
baht debentures' covenant tot maintain debt to eauity ratio below 3 to 1.
In addition, Thailand's economy downturn is expected to lower
telecommunications demand which will further heighten competition in the
telecommunications industry and keep revenues for UCOM group lower-than-
expected. The rating is somewhat offset by the company's fundamental
strength and sound management vision and depth. Also, the strong
competitive market position of its cellular operator subsidiary, Total
Access Communications Co., Ltd. (TAC), is expected to continuously
generate a significant steady income to UCOM group in the future.
TRIS said that UCOM group has a good foundation in
telecommunications related businesses including mobile phones, pagers,
trunk radios, and multimedia services, supported by its communications
infrastructure as microwave link, satellite, and optical fiber lines.
Cellular services, operated by TAC, its 71% subsidiary, currently is the
most important business of UCOM group. TAC's revenues accounted for 52%
of total revenues in 1996. Cellular services in Thailand has been a
duopoly, with The Telephone Organization of Thailand (TOT) and The
Communications Authority of Thailand (CAT) providing 27-year concessions
each to Advance Info Services PLC (ADVANC) and TAC. With wide network
coverage and a large subscriber base, TAC held a 41% market share in
cellular services as of 30 June 1997, after the 48% market share of
ADVANC. Steady cellular revenues from TAC should be an important income
source for UCOM group in the future.
Thailand economic downturn is lowering demand for non-essential
goods and services including cellular phone use. TAC's subscribers number
increased only 10% in the first half of 1997, compared to 25% in the first
half of 1996. The slowdown in subscriber growth is expected to continue
for the next couple of years. This will lead to lower-than-expected
airtime revenues for UCOM group. Lower-than-expected demand will further
aggravate already intense competition in the cellular industry through
various sales promotions and campaigns. UCOM's other main business is the
communicaiton networks business which contributed 20% of revenues in 1996.
Government budget cuts are likely to reduce the number of new projects for
UCOM's networks business in the future. Also, current projects from the
government, representing 70% of revenues in the networks business, may
experience payment delay, As a result, the revenues in the networks
business should decrease in the future.
UCOM expects significant income from TAC's cellular services,
anticipating a ratio of operating income to sales at a high 35-40% in
1997. During late 1997, UCOM is expected to increase liquidity with a
7,200-million-baht cash infusion by selling a 10% stake in TAC to a
foreign strategic partner, Foreign investments worth approximately USD85
million should further support UCOM's liquidity. The baht devalustion
heightened UCOM's expesure to foreign exchange risk. As of 30 June 1997,
unhedged foreign debts accounted for 90% of UCOM's total debts. These
include short-term loans of USD200 million, which have already been rolled
over to 1998, long-term loans of USD315 million due in 1999-2003, and
bonds and convertible bonds of USD880 million due in 2001-2006. The baht
devaluation will incresae its debt burden from an already high 42,000
million baht in the first half of 1997. Its net worth also is expected to
decrease when the company absorbs all exchange losses in 1997. As a
result, its debts to capitalization at the end of 1997 is expected to be
in the 75-80% range. This causes major concern because it will breach its
5,000-million-debentures's covenant that requires UCOM to maintain debt to
capitalization below 75%. Until the UCOM group increases its capital or
remedies this required obligation, the company will have to repay the
whole principal and interest. TRIS is concerned about the company's
capital structure over the next few years. UCOM group will need
significant cash flow from TAC's operation and newly developed businesses
to improve its financial profile in the future.
UCOM's rating is removed from CreditAlert, where it was placed on
July 3 1997 due to the decision by the Bank of Thailand to alter the
country's foreign exchange regime from a basket of currencies to a managed
float which is a de facto devaluation of baht.
Note: United Communication Industry PLC (UCOM) TRIS's rating
UCOM#1 : 5,000 mb sr debs due 2000 Downgraded to BBB+ from A
End.
Thai Rating and Information Services (TRIS) announced Tuesday, 11
November 1997 that it has downgraded the 5,000 million baht senior
debentures of United Communication Industry PLC (UCOM) to "BBB+" from "A".
The downgrade is based upon a significant increase in UCOM's debt burden
from the baht depreciation, making it likely to breach the 5,000- million-
baht debentures' covenant tot maintain debt to eauity ratio below 3 to 1.
In addition, Thailand's economy downturn is expected to lower
telecommunications demand which will further heighten competition in the
telecommunications industry and keep revenues for UCOM group lower-than-
expected. The rating is somewhat offset by the company's fundamental
strength and sound management vision and depth. Also, the strong
competitive market position of its cellular operator subsidiary, Total
Access Communications Co., Ltd. (TAC), is expected to continuously
generate a significant steady income to UCOM group in the future.
TRIS said that UCOM group has a good foundation in
telecommunications related businesses including mobile phones, pagers,
trunk radios, and multimedia services, supported by its communications
infrastructure as microwave link, satellite, and optical fiber lines.
Cellular services, operated by TAC, its 71% subsidiary, currently is the
most important business of UCOM group. TAC's revenues accounted for 52%
of total revenues in 1996. Cellular services in Thailand has been a
duopoly, with The Telephone Organization of Thailand (TOT) and The
Communications Authority of Thailand (CAT) providing 27-year concessions
each to Advance Info Services PLC (ADVANC) and TAC. With wide network
coverage and a large subscriber base, TAC held a 41% market share in
cellular services as of 30 June 1997, after the 48% market share of
ADVANC. Steady cellular revenues from TAC should be an important income
source for UCOM group in the future.
Thailand economic downturn is lowering demand for non-essential
goods and services including cellular phone use. TAC's subscribers number
increased only 10% in the first half of 1997, compared to 25% in the first
half of 1996. The slowdown in subscriber growth is expected to continue
for the next couple of years. This will lead to lower-than-expected
airtime revenues for UCOM group. Lower-than-expected demand will further
aggravate already intense competition in the cellular industry through
various sales promotions and campaigns. UCOM's other main business is the
communicaiton networks business which contributed 20% of revenues in 1996.
Government budget cuts are likely to reduce the number of new projects for
UCOM's networks business in the future. Also, current projects from the
government, representing 70% of revenues in the networks business, may
experience payment delay, As a result, the revenues in the networks
business should decrease in the future.
UCOM expects significant income from TAC's cellular services,
anticipating a ratio of operating income to sales at a high 35-40% in
1997. During late 1997, UCOM is expected to increase liquidity with a
7,200-million-baht cash infusion by selling a 10% stake in TAC to a
foreign strategic partner, Foreign investments worth approximately USD85
million should further support UCOM's liquidity. The baht devalustion
heightened UCOM's expesure to foreign exchange risk. As of 30 June 1997,
unhedged foreign debts accounted for 90% of UCOM's total debts. These
include short-term loans of USD200 million, which have already been rolled
over to 1998, long-term loans of USD315 million due in 1999-2003, and
bonds and convertible bonds of USD880 million due in 2001-2006. The baht
devaluation will incresae its debt burden from an already high 42,000
million baht in the first half of 1997. Its net worth also is expected to
decrease when the company absorbs all exchange losses in 1997. As a
result, its debts to capitalization at the end of 1997 is expected to be
in the 75-80% range. This causes major concern because it will breach its
5,000-million-debentures's covenant that requires UCOM to maintain debt to
capitalization below 75%. Until the UCOM group increases its capital or
remedies this required obligation, the company will have to repay the
whole principal and interest. TRIS is concerned about the company's
capital structure over the next few years. UCOM group will need
significant cash flow from TAC's operation and newly developed businesses
to improve its financial profile in the future.
UCOM's rating is removed from CreditAlert, where it was placed on
July 3 1997 due to the decision by the Bank of Thailand to alter the
country's foreign exchange regime from a basket of currencies to a managed
float which is a de facto devaluation of baht.
Note: United Communication Industry PLC (UCOM) TRIS's rating
UCOM#1 : 5,000 mb sr debs due 2000 Downgraded to BBB+ from A
End.