TRIS Rating Co., Ltd. has affirmed the rating of “AA+” for Bangkok Metropolitan Administration (BMA), a local government organization, with “stable” outlook. The rating is based on the importance of the Bangkok Metropolis (Bangkok) as Thailand’s administrative and economic center. In 2011, the economy has recovered and is expected to continue growing. The rating also reflects BMA’s reliable tax revenue, consistently sound budgetary performance, and a strong financial profile derived from very low leverage and 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, plus the future investments and funding arrangements, 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 2010, the gross provincial product (GPP) of Bangkok was the highest in the country, amounting to Bt2.51 trillion or 25% 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 (70%-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. However, during fiscal year 2009-2010, the contribution from land transfer fees declined to approximately 10% of total revenue as land transfer fees and special business taxes were reduced by the government’s economic stimulus package, which aimed to revive the real estate industry. Tax revenue is considered a highly reliable source of income for BMA, although the amount varies with the nation’s economy.
TRIS Rating said, in fiscal year 2010, even though there was some effect from political instability, the local economy rebounded impressively, resulting in a significant increase in allocated taxes. Consequently, in fiscal year 2010, revenue collection accounted for 113% of the total Bt41,000 million budget of BMA, an increase of 20% from the previous year. The growth was amplified by a 23% rise in allocated taxes. However, in fiscal year 2010, BMA had additional expenditures which increased its expenditures by 18%, compared with fiscal year 2009. For the first nine months of fiscal year 2011, the continuous expansion of the economy also supported an 18% year-on-year (y-o-y) increase in tax collections. Hence, BMA’s financial profile remains very strong, with high liquidity, a low debt burden, and a high level of cash on hand.
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. BMA also has planned to invest in many capital-intensive public transportation projects. BMA has invested in the projects through its subsidiary, Krungthep Thanakom Co., Ltd. (KT). BMA granted its subsidiary a long-term contract which KT used as collateral to raise funds for the project investments. The terms and conditions are structured to match with BMA’s fee payments. Hence, BMA’s long-term contract is characterized as a debt-like obligation and TRIS Rating would consider this as a liability of BMA. -- End
Issuer Rating: Affirmed at AA+ Rating Outlook: Stable
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