TRIS Rating Co., Ltd. has affirmed the company and issue ratings of Bangkok Mass Transit System PLC (BTSC) at “A” with “stable” outlook. The ratings reflect stable operating cash flow supported by a proven record of system and potential ridership growths derived from an only mass transit system located in downtown Bangkok. The ratings also take into consideration a strengthening balance sheet after the company’s business rehabilitation plan was complete. These strengths are partially offset by the significant proportion of revenue the company derives from operating a single transit network, as well as the capital expenditures needed over the next few years, and an expansion into property development.
The rating confirmation removes the CreditAlert with “developing” implications placed on the company and issue ratings of BTSC since 24 March 2010, following the announcement of BTS Group Holdings PLC (BTSG) to acquire the common stock of the company. BTSG has acquired a 94.6% of BTSC and has assumed full control over BTSC’s business. BTSC’s ratings shall be constrained by the credit profile of BTSG, considering the parent- subsidiary relationship. BTSC currently contributes over 90% of the consolidated performance of BTSG and is considered a core subsidiary. However, BTSG currently has a weaker financial profile due to a higher level of leverage. Therefore, if BTSG’s credit quality is further deteriorated, BTSC’s ratings could be affected accordingly.
The “stable” outlook is based on the expectation that BTSC will maintain good service on the BTS system to sustain ridership. BTSC’s financial profile has improved as projected to be appropriate for the rating category. However, its credit ratings could be pressured by the riskier earnings and business profile of the overall group.
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 consists of two separate lines, the Silom line and the Sukhumvit line, serving 25.7 kilometers (km.) in the Silom, Sathorn, and Sukhumvit areas. The two lines connect at the Central station (widely known as Siam Square). The BTS connects with the underground rail system (operated by Bangkok Metro PLC -- BMCL) at the Asok, Sala Daeng and Mo Chit stations. BTS’s competitive advantages compared with other mode of transportation include a strong record of safety, convenience, and reliability. Although political risk is a typical area of concern for business operating under a concession, BTSC’s concession is less complicated and has been well-managed.
BTSC is entitled to receive all revenues of 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). BTSC operates the advertising business through its wholly-owned susbsidiary, VGI Global Media Co., Ltd. (VGI). In addition, BTSC has diversified into property development along mass transit routes through its subsidiaries, Nuvo Line Agency Co., Ltd. (Nuvo Line) and BTS Assets Co., Ltd. (BTS Asset). Currently, the company has five land plots on hand. All are located near or next to BTS stations. The first two projects under development are a four-star hotel on South Sathorn road and a condominium on Phaholyothin road. The hotel is expected to generate revenue in the second half of fiscal year 2012. The condominium is being developed under the “Abstract” brand and is expected to be completely built and transferred to owners in fiscal year 2013.
TRIS Rating said that since inception, BTSC has faced financial difficulties due to the Thai baht depreciation in 1997 and the ridership that is lower than expectation. As a result, BTSC entered a business rehabilitation in 2006. The rehabilitation plan was concluded in 2008 and successfully executed in 2009. In May 2010, BTSG, formerly known as Tanayong PLC (a property developer and the founder of BTSC), acquired a 94.6% stake in BTSC at a total cost of Bt40,034 million via cash and share swap.
BTS ridership reached a sustainable level in fiscal year 2004 when total ridership reached 100 million trips, four years after opening. In fiscal year 2010, total ridership was 144,474,280 trips, a 6.28% year-on-year (y-o-y) growth, with an average daily ridership of 395,820 trips. However, average daily ridership in the first nine months (April- December) of fiscal year 2011 declined to 384,913 trips due to the suspension of BTS service for eight full days, and irregular service hours during May. The service interruption came due to the political unrest in Bangkok. Ridership turned around in June 2010 and average daily ridership reached 408,000 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 2010, BTSC reported total revenue of Bt4,780 million, up 12.9% from the previous year. Farebox revenue remained the major revenue contributor at 70.9%. The growth in revenue was partly due to the increase in ridership from the opening of the Silom line extension and service income from operating train in the Silom line extension. The company posted its first net profit from operations during the last five years, mainly due to the great reduction of financing cost after the business rehabilitation. The operating margin before depreciation and amortization rose to 53.94% in the fiscal year 2010, compared with 52.42% in the previous year. The increase was due to lower maintenance expenses as the company has completed its major overhaul on rolling stock and track since fiscal year 2009. However, the operating margin in the first nine months of fiscal year 2011 softened to 51.35% partly due to higher selling, general and administrative (SG&A) expenses of property business which used to promote “Abstracts” brand.
BTSC’s capital structure after the rehabilitation and recapitalization improved significantly. Total debt to capitalization ratio fell from 121.5% in fiscal year 2008 to 40.74% in fiscal year 2009 and to 25.98% at the end of December 2010. Cash flow protection, though remaining low, improved along with expectations. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio rose from 0.99 times in fiscal year 2009 to 5.17 times in fiscal year 2010. The funds from operations (FFO) to total debt ratio increased from 8.21% to 17.14% in the same period. With plans for more property development projects, capital spending is expected to exceed operating cash flow during the construction period. TRIS Rating expects that BTSC will finance the property development business in part with operating cash flow. The debt level, though it is not foreseen to decline in the medium term, is not expected to significantly increase. -- End
Company Rating: Affirmed at A Issue Ratings: BTS128A: Bt2,500 million senior debentures due 2012 Affirmed at A BTS138A: Bt2,500 million senior debentures due 2013 Affirmed at A BTS148A: Bt4,000 million senior debentures due 2014 Affirmed at A BTS158A: Bt1,500 million senior debentures due 2015 Affirmed at A BTS168A: Bt1,500 million senior debentures due 2016 Affirmed at A Rating Outlook: Stable
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