TRIS Rating Co., Ltd. has assigned the rating to the proposed issue of up to Bt6,750 million in senior secured debentures of True Corporation PLC (TRUE) at “BBB”. At the same time, TRIS Rating has affirmed TRUE’s company rating and the ratings of its existing senior secured debentures at “BBB”, and has also affirmed the rating of TRUE’s senior secured debentures, partially guaranteed by the International Finance Corporation (IFC), at “A”. The rating outlook remains “stable”. The ratings reflect TRUE’s market position as the leading integrated telecommunications company in Thailand, growth prospects of data communications and mobile phone businesses, and its competent management team. These strengths are constrained by the company’s weak financial profile due to high leverage, fierce competition in cellular and data communication services, and uncertainty of the telecommunications regulatory framework. The ratings do not reflect the company’s plan to raise equity via rights offering up to Bt19.5 billion due to uncertainty in total proceeds that TRUE will be able to raise. TRUE will use the proceeds from the proposed debentures to prepay its existing debentures, primarily the TRUE112A debentures, in order to partially reduce refinancing risk on the back of uncertain developments in financial and capital markets worldwide.
The “stable” outlook reflects the expectation that TRUE will sustain its strong market position in the telecom business and strengthen its competitive advantage by bundling products and services to meet customer demand. TRUE’s ratings could be negatively impacted if the company’s financial performance deteriorates and its ability to generate cash weakens in light of the current competitive atmosphere. The ratings could also be affected if the company decides to make major investments that require substantial amounts of debt financing.
TRIS Rating reported that TRUE is Thailand’s leading integrated telecommunications service provider. The company’s three main businesses are TrueOnline, True Move and TrueVisions, which for the first nine months of 2008 contributed 38%, 44% and 18% of total revenue, respectively. The company’s strong business profile is underscored by its leading positions in the fixed-line market in the Greater Bangkok and in the consumer broadband market, with market shares of around 50% and over 80%, respectively. TRUE is also the largest pay TV operator, operated under True Visions PLC, and is the third largest mobile phone operator in Thailand under the operation of True Move Co., Ltd., with a subscriber market share of approximately 23%.
TRIS Rating said, the telecommunications business is very competitive, particularly in the mobile phone sector. Competition is heightened by numerous price cutting campaigns and attractive promotional packages offered by mobile operators. This intense competition pressures the revenues and margins of the entire industry. TRUE’s fixed line business is trending downward like in other countries due to mobile phone substitution. However, bright prospects for data communications services should partly mitigate any decline in fixed line revenue.
TRUE replaced the access charge (AC) payments for mobile phone business with the interconnection charge (IC) in November 2006. For the first nine months of 2008, TRUE’s revenue increased by 0.7% year-on-year to Bt46,067 million, driven by growth in TrueVisions and TrueOnline. Operating margin weakened slightly as a result of higher IC payments. As of September 2008, total debt was Bt81,066 million, while net debt-to-capitalization ratio remained very high at 89.9%. The funds from operations (FFO) to total debt ratio for the first nine months of 2008 was 11.9% (non-annualized), compared with 15.5% in 2007. As of September 2008, TRUE’s senior indebtedness to earnings before interest, tax, depreciation and amortization (EBITDA) was 3.68 times, relatively close to the covenant limit at 4.0 times, but is considered a continuing improvement from about 4.0 times in the previous few quarters. TRIS Rating views that TRUE’s financial profile will continue to be under pressure by the refinancing risk in view that internal cash generation remains insufficient to repay debts and fund capital expenditure requirements.
TRIS Rating said, while the ratings of the TRUE097A, TRUE107A, TRUE117A, TRUE127A and the new issues are based solely on TRUE’s creditworthiness, the credit rating of the TRUE112A issue is enhanced by a partial guarantee (50% of principal) provided by IFC. IFC is a member of the World Bank Group and is rated “AAA” by Standard & Poor’s and “Aaa” by Moody’s Investors Service. -- End