TRIS Rating Co., Ltd. has affirmed the rating of “AA+” with “stable” outlook for Bangkok Metropolitan Administration, a local government organization, hereinafter is referred as “BMA”. The rating is based on the importance of the Bangkok Metropolis (Bangkok) as Thailand’s administrative and economic center. Despite an economic contraction in 2009, the Thai economy has rebounded since the beginning of 2010. The rating also reflects BMA’s reliable tax revenue, consistently sound budgetary performance, and a strong financial profile as it is nearly debt-free and has a large amount of cash on hand. The rating, however, is constrained by the huge capital investments needed for public transportation and infrastructure and an increasing financial burden from assuming public services delegated from the central government under a decentralization plan. Despite undertaking various costly responsibilities, BMA faces a restriction in seeking additional revenue sources. In addition, some issues to be monitored are the timely availability of audited financial reports, the thorough feasibility study for future investments and the corresponding funding structure, including the development of a concrete debt management framework.
The “stable” outlook reflects BMA’s reliable revenue sources and conservative budgetary policy. TRIS Rating expects that BMA will continue to receive support from the central government at all times. Nevertheless, BMA should maintain proper financial discipline to ensure sound budgetary performance and a robust financial profile. Leverage, if incurred in the future, or any financial obligation from investments made through its subsidiary should be well planned and taken into consideration the proper level of BMA’s revenue and debt service ability.
TRIS Rating reported that BMA is a local government organization and has the responsibility of providing public services for both residents and businesses in Bangkok. As the capital city of Thailand, Bangkok benefits from its position as the social, political and economic center of the country. In 2009, the gross provincial product (GPP) of Bangkok was the highest in the country, amounting to Bt2.35 trillion or 26% of Thailand’s gross domestic product (GDP). In terms of fiscal performance, approximately 90%-95% of BMA’s total revenue was from taxes, both local taxes collected by BMA (20%) and allocated taxes collected by other governmental agencies and remitted to BMA (73%-75%). The major component of local taxes is property taxes, which account for over 90% of total local taxes. Almost half of the allocated taxes are derived from value added tax, while automobile tax and land transfer fees average 19%-20% each. Tax revenue is considered a highly reliable source of income for BMA, although the amount varies with the nation’s economy. In 2009, the Thai economy was negatively impacted by the global economic crunch and a heightened political tensionuation, resulting in a significant reduction in allocated taxes. Consequently, in 2009, revenue collection accounted for 84% of the total Bt46,000 million budget of BMA, a decline of 15% from the previous year. The reduction was amplified by a 20% decrease in allocated taxes. However, BMA could reduce its expenditures by 10%, compared with fiscal year 2009, in order to comply with the revenue collection and balanced budget regulation. For the first nine months of fiscal year 2010, the revived economy supported a 20% year-on-year (y-o-y) increase in tax collection. Hence, BMA’s financial profile remains very strong with high liquidity, virtually no debt, and high level of cash on hand.
TRIS Rating said, Bangkok is the most developed city in Thailand. However, more investment in public services and infrastructure is needed to serve the expanding population and to facilitate economic growth. Public services, including new projects initiated by BMA and transferred from the central government, require large amounts of funds for project development and ongoing expenditures. In addition to a tax revenue allocation, the central government also grants BMA an annual subsidy. However, these funding sources are somewhat limited and are not sufficient as BMA has planned to invest in many capital-intensive public transportation projects. Currently, BMA’s management is studying alternative investment structures, including contracting its subsidiary. BMA will grant its subsidiary a long-term contract which will be used as collateral to raise funds for project investment. The terms and conditions of the loan will be matched with BMA’s fee payment. Hence, the debt incurred by its subsidiary and/or BMA’s long-term debt-like obligation shall be considered as BMA’s liability. -- End
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