TRIS Rating Co., Ltd. has assigned “A-” ratings with “stable” outlook to Don Muang Tollway PLC (DMT) and its proposed issue of up to Bt7,000 million in senior debentures. The ratings reflect DMT’s improving financial profile after the third amendment of its concession agreement to extend the concession life and clearly define the toll fee adjustment structure and process. In addition, the ratings are supported by DMT’s relatively long track record of operation, the strategic location of the tollway, and its experienced management team. These strengths are partially offset by the historically volatile traffic profile of the single toll road which competes directly with a toll-free road, uncertainties over future government transportation policies, and relatively high leverage. The proceeds from the proposed debentures will be used to refinance all DMT’s existing bank loans of approximately Bt7,000 million. Since DMT’s existing loans are secured by the company’s assets, the issue rating assigned is based on the success of the refinancing and subsequent release of those assets.
The “stable” outlook reflects the expectation that the traffic volume on DMT’s toll road will not be significantly lower than the current level for the remaining concession life. In addition, dividend payments and future investments are expected to be prudentially considered so that they will not adversely affect the company’s financial profile.
TRIS Rating reported that DMT constructed and operates a 21-kilometer elevated tollway from Din Daeng to National Memorial Monument, under a 25-year Build-Transfer-Operate (BTO) concession granted by the Department of Highways (DOH). The toll road was constructed as a six-lane elevated road situated above the Vibhavadi-Rangsit (V-R) road, consisting of three sections: original tollway (Din Daeng-Don Muang), northern extension (Don Muang-National Memorial Monument), and Rangsit extension (National Memorial Monument-Rangsit). The first two sections are concessioned and operated by DMT whereas Rangsit extension is toll-free and operated by DOH. The toll road helps mitigate traffic congestion on V-R highway (highway no. 31), the major route connecting the heart of Bangkok with the Bangkok International Airport (Don Muang) and various central, northern and northeastern provinces.
Since its inception in late 1994, DMT was exposed to several event risks, namely, the financial crisis in 1997, the increase and expansion of traffic lanes on V-R highway and construction of local road in 1998, the opening of the Udon Ratthaya expressway (Bang Pa In-Pak Kret expressway) in 1999, and the relocation of Don Muang airport in 2006. The financial crisis in mid-1997 coupled with the expansion of the V-R corridor and the opening of the Udon Ratthaya expressway caused the traffic volume on DMT’s toll road to plunge by 60% from an average of 125,996 vehicles per day in 1997 to an average of 50,915 vehicles per day in 1999. The traffic volume gradually rebounded and reached an average of 92,581 vehicles per day in 2004 as the economy expanded. DMT posted a significant increase in traffic volume in 2005, as volume rose by 50% to an average of 139,166 vehicles per day. The rise was due to replacement of a graduated tariff (Bt20 to Bt43) to a flat rate of Bt20. Nevertheless, the opening of Suvarnnabhumi Airport in 2006 and an increase in toll rates in 2006 and 2007 caused the traffic to decline by 12%, 17%, and 23% in 2006, 2007, and 2008, respectively.
TRIS Rating said, despite its volatile traffic profile, DMT benefits from its relatively favorable concession agreement. DMT’s concession stipulates that DOH shall negotiate with DMT to remedy the negative effects on the company’s financial position caused by certain events such as force majeure or an act or omission by the authorities which causes fewer vehicles to use the tollway. The company amended the concession agreement for three times. Under the latest amendment in 2007 (MOA3), DMT was granted a new concession period of 27 years starting from September 2007 and a pre-approved tariff schedule for the whole concession period. Thus, the company can automatically increase toll rates after notifying DOH 30 days in advance. In addition, the benefit sharing with DOH in the last four years was abolished.
DMT’s financial profile improved significantly after the third amendment and a recapitalization in 2007. Tariff adjustments of Bt25 from Bt30 to Bt55 in 2007 and an increase of Bt30 in 2009 caused traffic to decline from an average of 101,070 vehicles per day in 2007 to an average of 78,000 and 80,000 vehicles per day in 2008 and 2009, respectively. However, total revenues increased substantially to Bt1,303 million in 2008 and Bt1,366 million in 2009 from Bt956 million in 2007. The operating profit margin held in the range of 75%-81%. DMT’s capital structure and cash flow protection also improved significantly in the last three years. The total debt to capitalization ratio improved from 85% in 2006 to 62% in 2007 due to a huge debt repayment using the proceeds from a private placement. Currently, the debt to capitalization ratio stays at around 56%. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio strengthened from 1.2 times in 2005 to 3.4 times in 2009 and 3.1 times in the first six months of 2010. The funds from operations (FFO) to total debt ratio increased from 1.5% in 2005 to 8.2% and 3.8% (non-annualized) in 2009 and in the first six months of 2010, respectively.
TRIS Rating expects that in the medium term, the traffic volume on DMT’s toll road will continue to grow based on the economic recovery, expansion of residential housing in the northern Bangkok area and heavy traffic congestion on free roads. DMT’s operating performance is expected to improve in tandem with the recovery of traffic flow, toll rate adjustments, and the management team’s ability to effectively manage operating costs. Nonetheless, the company faces potential risk from the lack of strong coordination among various government entities responsible for road infrastructure planning and implementation. -- End
Company Rating: A- Issue Rating: Up to Bt7,000 million senior debentures due within 2021 A- Rating Outlook: Stable
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