TRIS Rating Co., Ltd. has affirmed the company rating of True Corporation PLC (TRUE) and the ratings of TRUE’s senior secured debentures at “BBB”. At the same time, TRIS Rating has assigned the rating to TRUE’s proposed issue of up to Bt1,100 million in senior debentures at “BBB-”, one notch below the company rating due to its unsecured nature. The rating outlook is revised to “negative” from “stable”. The ratings reflect TRUE’s leading position as the integrated telecommunications company in Thailand; competent management team; and growth prospects of broadband Internet, wireless technology, and pay-TV segment. These strengths are constrained by the company’s weak financial profile due to high leverage, fierce competition in core business segments, uncertainty of the telecommunications regulation, and exposure to refinancing risk.
The “negative” outlook reflects a heightened level of debt refinancing risk that TrueMove, TRUE’s subsidiary operating wireless or mobile phone business, will likely be facing in 2013. The risk stems from the significant size of the debentures approaching maturity compared with TRUE’s cash flow generations and the uncertainty surrounding TrueMove’s business model if its concession expires before the 3G licenses are awarded. The ratings could be downgraded over the next 12-18 months if the company could not demonstrate material confirmations of TrueMove’s business and financial plans. However, the outlook could be revised back to “stable” if TrueMove could accomplish the aforementioned conditions or if the market and regulatory environments evolve favorably in a way that supports TrueMove’s long-term business viability.
TRIS Rating reported that TRUE is Thailand’s leading integrated telecommunications service provider. The company’s three main businesses are wireline operated by TrueOnline, wireless by TrueMove and pay-television (pay-TV) by TrueVisions, which for the first half of 2010 contributed 35%, 50% and 15% in terms of revenue; and 51%, 36% and 12% in terms of EBITDA (earnings before interest, tax, depreciation and amortization), respectively. TRUE holds a strong position in the broadband Internet market with a revenue share of 35% nationwide and 67% in Greater Bangkok. TRUE’s competitiveness is strong in this segment given its fixed line network coverage in Greater Bangkok. Robust prospects of broadband Internet and rapid subscriber growth should be able to fully offset declining fixed-line revenue in the medium term. TRUE’s strong business profile also reflects its positions as the largest pay-TV operator and the third rank mobile phone operator in Thailand with subscriber market shares of 50% and 24% nationwide, respectively. The under-penetrated pay-TV industry and wireless data services are two crucial areas that will continue to support TRUE’s business fundamental and its credit profile over the medium term.
TRIS Rating said, like all other telecom operators, TRUE is facing challenges from competitive environment, particularly in the mobile phone sector where market is dynamic and subscribers are price sensitive. Fixed-line and mobile voice-services are already in their maturing stages, resulting in flat or declining revenues. The mobile sector is also negatively weighed by uncertainty in regulatory developments.
TRUE’s financial profile is weak. Its balance sheet is highly levered. The company is also exposed to the refinancing risk in 2013. However, relatively stable revenues and margins provide a good cash flow visibility in the medium term. TRUE’s revenue (excluding interconnection charge -- IC) is expected to grow in the low single digit at around 3%-4% for the next few years, driven by broadband Internet, mobile data, and pay-TV commercials. However, this will be partially offset by declining traditional phone and mobile voice services. TRUE’s operating margin has been stable at around 31%-33% for the past three years. However, the margin is somewhat vulnerable to TrueMove’s net IC positions, as the pricing dynamics in the mobile sector continue to undergo on/off-net tariff adjustments. The margin is expected to be under pressures from the ongoing business transformation in the online segment and from TrueMove’s higher revenue sharing rates after 2011 from 25% to 30% of service revenues.
At the end of June 2010, TRUE’s total debt stood at Bt75.7 billion, down from the peak level in 2005 at Bt95.3 billion. The debt-to-capitalization ratio remained very high, though it improved slightly to 87.0% as of June 2010 from 92.3% in 2005. TRIS Rating expects the debt-to-capitalization ratio to improve only very slowly. TRUE’s debt maturities during 2011-2012 are Bt5.8-Bt5.9 billion per annum, and will jump to Bt21.9 billion in 2013, and Bt17.3 billion in 2014. The higher repayments are largely from TrueMove’s debentures, said TRIS Rating. -- End
Company Rating: Affirmed at BBB Issue Ratings: TRUE117A: Bt2,413 million senior secured debentures due 2011 Affirmed at BBB TRUE144A: Bt6,183 million senior secured debentures due 2014 Affirmed at BBB TRUE151A: Bt7,000 million senior secured debentures due 2015 Affirmed at BBB Up to Bt1,100 million senior debentures due within 2013 BBB- Rating Outlook: Negative from Stable
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