TRIS Rating Co., Ltd. has assigned the company rating of Bangkok Mass Transit System PLC (BTSC) and the rating of BTSC’s issue of up to Bt12,000 million in senior debentures at “A” with “stable” outlook. The proceeds from the debentures will be used to repay existing debts. The ratings are based on the assumption that the company will not exercise the call option on the convertible debentures before the issuance of the new debentures. The ratings reflect a proven record of system ridership, stable operating cash flow, the benefits from being a mass transit system located in downtown Bangkok, potential ridership growth, and a strong balance sheet after the business rehabilitation. These strengths are partially offset by a single network, large capital expenditures needed over the next four years, increased business risk profile as BTSC begins to invest in property development through its subsidiaries, and political risk which most concessionaires face. In addition, debenture holders should be aware that there is no negative pledge under the terms and conditions governing the rights and obligations of the company and the debenture holders. Though all of BTSC’s assets are currently free of encumbrances, the company may provide collateral to any creditor in the future. If this occurs, the rating of the debentures may be notched down from the company rating.
The “stable” outlook is based on the expectation that BTSC will maintain good service on the system to sustain ridership. While TRIS Rating expects BTSC to have substantial capital expenditures on property development projects over the next four years, BTSC’s management intention to maintain the company’s good credit profile as well as the strong operating cash flow from the rail transport business should be able to maintain the capital structure and cash flow protection measures appropriate for the rating category.
TRIS Rating reported that BTSC, which was established in 1992, is the operator of the only privately-financed mass rapid transit system in Thailand. BTSC was awarded a 30-year concession by the Bangkok Metropolitan Administration (BMA) to build and operate the Bangkok Mass Transit System (BTS). The BTS, an elevated heavy rail system, commenced commercial operations on 5 December 1999. The rail system, which runs above three highly congested roads (Silom, Sathorn, and Sukhumvit), serves residential areas, the central business district, and key commercial areas. There are 25 stations along the operating track of 25.7 kilometers (k.m.) with two separate lines, the Silom line and the Sukhumvit line. The two lines connect at the Central station (widely known as Siam Square). The BTS connects with the underground rail system (operated by the Bangkok Metro PLC -- BMCL) at the Asok, Sala Daeng and Mo Chit stations. BTS’s competitive advantages are a record of safety, convenience and reliability.
BTSC is entitled to receive all revenues on the BTS, including fare box revenue, and commercial rental and advertising revenues at 23 stations (excluding the newly opened Krungthonburi and Wongwienyai stations on the Silom line). On 29 June 2001, BTSC has granted VGI Global Media Co., Ltd. (VGI Global) an exclusive license to market all commercial areas and advertising in the BTS Skytrain. BTSC receives minimum guaranteed revenue or 50% of gross revenue from the use of advertising space and merchandising areas, whichever is greater, while VGI is responsible for all investments and operating expenses. On 13 March 2009, BTSC signed a sale and purchase agreement to buy all VGI Global shares from FN Asia Co., Ltd. for Bt2,500 million. The purchase should be completed in the third quarter of 2009. Apart from the advertising business, BTSC has diversified into property development along mass transit routes through its subsidiaries, Nuvo Line Agency Co., Ltd. (Nuvo Line) and UniHolding Co., Ltd. (UniHolding). Currently, the company has three land plots on hand and two land plots under sale and purchase agreements. All are located near or next to BTS stations. The first property development project will be a four-star hotel located on South Sathorn road, close to the BTS Surasak station.
TRIS Rating said, BTSC has faced financial difficulties since commencing operations. Operating performance was lower than expected because ridership was lower than projected. The level of debt increased after the Thai baht depreciated in 1997, which resulted in a surge in interest expense. BTS ridership reached a sustainable level in fiscal year 2004 when total ridership reached 100 million trips, four years after opening. In fiscal year 2009, total ridership was 135,939,800 trips, with an average weekday ridership of 429,004 trips. TRIS Rating believes that BTS ridership will grow continuously due to the expansion of the mass transit network, more land development along the BTS route, heavy traffic congestion, and continuous growth of the Thai economy.
For the fiscal year ended March 2009, BTSC reported a net profit of Bt21,911 million of which Bt22,447 million was a gain from business rehabilitation. Fare box revenue was Bt3,288 million, an increase of Bt67 million (2.1%) from the previous year as a result of a 2.1% increase in ridership. The operating margin before depreciation and amortization dropped to 52.77%, compared with 54.46% in the previous year. The drop was due to higher professional fees for the new capital issued as part of the business reorganization.
After exiting from business rehabilitation in October 2008, BTSC’s capital structure has been relatively strong. As of March 2009, adjusted debt (including future interest of Bt4,895 million but excluding convertible debentures of Bt5,745 million) was Bt14,751 million. The adjusted debt to capitalization ratio was 31.39% and the funds from operations (FFO) to adjusted debt ratio was 10.7%. With planned capital spending for property development projects, TRIS Rating expects that debt levels will not decline in the medium term. Though capital spending is expected to exceed operating cash flow as the property development projects are under construction, the company is expected to maintain the total debt to capitalization ratio below 40%, said TRIS Rating. -- End.