TRIS Rating Co., Ltd. has affirmed the company rating of BTS Group Holdings PLC (BTSG) at “A” with “stable” outlook. The rating reflects BTSG’s position as an investment holding company, owning Bangkok Mass Transit System PLC (BTSC) through a 96.4% ownership stake, and the expectation of a reliable stream of dividends from BTSC. However, this strength is constrained by a high level of financial leverage at the holding company level, and the risk inherent in the property development business. Since the operating performance of BTSC comprises a large portion of BTSG’s performance, BTSG’s credit profile is highly correlated to the credit quality of BTSC (rated “A” by TRIS Rating). However, in terms of cash flow, BTSG is heavily reliant on the dividend stream from BTSC to serve its working capital and debt service needs. As a result, the issue rating of BTSG, if any, shall be structurally subordinated to the ratings of BTSC. The “stable” outlook reflects the expectation that the mass transit segment will continue to generate solid and predictable cash flows. However, any deterioration of the Group’s business or financial profile, as a result of aggressive investments in riskier businesses or higher dividend payouts, could put pressure on the rating.
TRIS Rating reported that BTSG (formerly known as Tanayong PLC) was established in 1968. The company’s principal business was property development, with properties mostly located on Bangna-Trad road. However, following the acquisition of BTSC and the subsequent group reorganization during 2010-2011, BTSG became a holding company, owning subsidiaries engaged in four main lines of business: mass transit, media, property development, and services. Mass transit is the largest segment, generating approximately 64% of operating revenue in the first nine months of the fiscal year ended March 2012, followed by the media segment at 24%. Revenue from the property development segment is volatile as there is no continuity of new project launched. Currently, the company has one condominium project under development on Phaholyothin road. The total project value is approximately Bt3,000 million. Construction was 39% complete as of December 2011.
TRIS Rating said, BTSG operates the mass transit and media businesses through two subsidiaries it owns directly and indirectly: BTSC and VGI Global Media Co., Ltd. (VGI). BTSC is the concessionaire which operates the sky train. The company was awarded a 30-year (December 1999-December 2029) concession by the Bangkok Metropolitan Administration (BMA) to build and operate the 23.5 kilometers (km.) Bangkok Mass Transit System (BTS) which runs through the Silom, Sathorn, and Sukhumvit areas. Under the terms of the concession, the company has the right to collect fares and undertake all commercial activities on the system, including the sale of advertising space and leasing commercial space. BTSC was also awarded contracts by the BMA to operate and maintain BTS extension routes on the Silom and Sukhumvit lines. The extensions were financed by the BMA. In December 2011, average daily ridership hit record high at 507,689 trips. VGI, a wholly-owned subsidiary of BTSC, manages the sale of advertising and space rental on the BTS system. VGI also manages the sale of advertising space in modern retail trade outlets such as Tesco Lotus, Big C, and Big C Extra. For the first nine months of fiscal year 2012, BTSC had consolidated total revenue of Bt5,310 million, compared with Bt3,869 million in the same period of the prior year. The increase came from a 31% rise in mass transit revenues and 40% rise in media revenue. BTSC’s revenue and earnings before interest, tax, depreciation, and amortization (EBITDA) contribution accounted for 91% and 100% of BTSG’s consolidated figures, respectively.
BTSG’s financial profile is mainly derived from BTSC’s financial performance, though BTSG’s profile is weaker. BTSG is exposed to higher financial risks than BTSC, since BTSG’s other businesses remain weak and because BTSG has higher leverage. After a recapitalization, BTSG’s leverage tumbled to Bt4,779 million at the end of March 2007, from Bt35,176 million in March 2006. Leverage declined continuously to Bt2,313 million as of March 2010. Following the debt- funded acquisition of BTSC in May 2010, BTSG’s leverage on a consolidated basis increased sharply to Bt23,628 million at the end of March 2011, including Bt10,000 million in convertible debentures and the consolidation of BTSC’s debt. Total debt increased to Bt25,871 million at the end of December 2011, in part to finance the purchase of new trains, bringing total debt to capitalization ratio to 40.5%. Under the terms and conditions of the convertible debenture issue, the holders have a right to exercise a put option on 25 January 2013. However, BTSG should have no problem to refinance the Bt10,000 million convertible debentures with loan from a bank as the company’s current debentures are fully bank guaranteed, said TRIS Rating. — End
Company Rating: Affirmed at A Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2012, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.