TRIS Rating Co., Ltd. has affirmed the company and senior debenture ratings of Don MuangTollway PLC (DMT) at “A-” with “stable” outlook. 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, plus uncertainties over future government transportation policies, and relatively high leverage. 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 remainder of the concession life. In addition, dividend payments and future investment needs are expected to be prudentially considered so that these cash outflows will not adversely affect the company’s financial profile.
TRIS Rating reported that DMT constructed and operates a 21-kilometer (km.) elevated tollway from Din Daeng to the 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) highway. The tollwayconsists of three sections: the original tollway (Din Daeng-Don Muang), the northern extension (Don Muang-National Memorial Monument), and the Rangsit extension (National Memorial Monument-Rangsit). The first two sections are concessioned and operated by DMT, whereas theRangsit extension is toll-free and operated by the 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.
TRIS Rating said, since the inception in late 1994, DMT faced several event risks, namely -- the Asian financial crisis in 1997, the expansion of the traffic lanes on the V-R highway and construction of a parallel local road in 1998, the opening of the UdonRatthaya expressway (Bang Pa In-Pak Kret expressway) in 1999, and the relocation of Don Muang airport in 2006. In addition, the toll rate adjustment is major factor which directly affects the traffic volume. In 2010, traffic volume tumbled by 29% due to a 55% increase in toll rates in December 2009. However, in the first half of 2011, the traffic volume rebounded impressively by 17% to an average of 62,252 vehicles per day, following the economic recovery.
Despite its volatile traffic profile, TRIS Rating said, DMT benefits from its relatively favorable concession agreement. DMT’s concession stipulates that the DOH shall negotiate with DMT to remedy any 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 has amended the concession agreement three times. In the latest amendment in 2007 (MOA3), DMT was granted a new concession period of 27 years starting from September 2007, and a pre-approved toll fee schedule for the whole concession period. Thus, according to the contract, the company can automatically increase the toll rates after notifying the 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. Although the toll increases caused a drop in traffic volume, revenue still rose as the increased toll rate outpaced the drop in traffic volume. Total revenue increased from Bt1,366 million in 2009 to Bt1,510 million in 2010. In the first six months of 2011, total revenue rose by 16% to Bt809 million as a result of higher traffic volume. During the past five years, the operating profit margin held in the range of 74%-81%. DMT’s capital structure and cash flow protection has also improved. The total debt to capitalization ratio improved from 55.7% in 2009 to 54.9% in 2010 and stood at 53.7% at the end of June 2011. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio slightly declined from 3.4 times in 2009 to 3.2 time in 2010 and recovered to 3.8 times in the first six months of 2011. The company reduced the interest rate risk by replacing the floating rate loans with fixed rate debentures in late 2010. The funds from operations (FFO) to total debt ratio has held at approximately 8.1% in the last three years and stood at 5.5% (non-annualized) in the first six months of 2011.
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 V-R 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: Affirmed at A- Issue Ratings: DMT13DA: Bt1,167 million senior debentures due 2013 Affirmed at A- DMT14DA: Bt1,315 million senior debentures due 2014 Affirmed at A- DMT156A: Bt250 million senior debentures due 2015 Affirmed at A- DMT15DA: Bt1,400 million senior debentures due 2015 Affirmed at A- DMT178A: Bt250 million senior debentures due 2017 Affirmed at A- DMT17DA: Bt1,478 million senior debentures due 2017 Affirmed at A- DMT20DA: Bt1,140 million senior debentures due 2020 Affirmed at A- Rating Outlook: Stable
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