TRIS Rating has affirmed the company and senior secured debenture ratings of True Corporation PLC (TRUE) at “BBB” and has affirmed the ratings of TRUE’s existing senior debentures at “BBB-”. At the same time, TRIS Rating has affirmed the rating of “BBB-” to TRUE’s proposed issue of up to Bt6 billion in senior debentures previously announced in 21 May 2012. In addition, TRIS Rating has revised the outlook of TRUE to “negative” from “stable”. The revision in outlook reflects TRUE’s weakened operating margins due to higher-than-expected network operating and subscriber acquisition costs in mobile segment. The revision also reflects heightened risks facing the mobile segment with regard to uncertain changes in cost structure owing to an expiring mobile concession and the company’s ability to turnaround the segment’s operating performance over the next 1-2 years.
TRUE’s credit ratings reflect the leading position of TRUE as the integrated telecom company; strong market positions in fixed-line broadband Internet and pay-television (pay-TV) segments; and established infrastructure in various technological platform. These strengths are offset by intense competition in core businesses, uncertainties in telecom regulations and on-going litigation concerns, downside risks from mobile segment’s aggressive investments, and the company’s high financial leverage.
The outlook is revised to “negative” from “stable” due to TRUE’s weakened operating margins and heightened risks facing the mobile segment with regard to uncertain changes in cost structure. TRUE’s ratings could be downgraded if the company’s performance is expected to remain weak for an extended period, or its cost structure becomes uncompetitive. However, the outlook could be revised back to “stable” if the mobile segment’s investments are expected to pay off meaningfully and TRUE’s capital structure is expected to be improving.
TRIS Rating reported that TRUE is Thailand’s leading integrated telecom service provider. The company’s three businesses comprise wireline which is operated by TrueOnline, wireless by True Mobile (including TrueMove and TrueMove H brands), and pay-TV by TrueVisions. In the first half of 2012, the three businesses contributed 27%, 62%, and 11% in terms of revenue.
TRIS Rating said, TRUE holds a strong position in the broadband Internet market, reflecting its extensive fixed line network coverage in Greater Bangkok. The company is also the largest pay-TV operator and the third rank mobile phone operator in Thailand. TRUE’s credit ratings take into account an expected continuing support from the CP Group, the company’s largest shareholder.
Since 2011, TRUE has invested heavily in third generation (3G) network rollout. TrueMove H had been able to acquire around two million subscribers by the end of June 2012. TRUE’s mobile segment’s service revenue (excluding interconnection charge or IC) in the first half of 2012 grew by 13% from the same period a year ago. Thanks to TRUE’s first mover advantage in 3G services, non-voice revenue in the mobile segment grew by 71%. However, TRIS Rating views that the segment’s network operating and subscriber acquisition costs have markedly exceeded our previous estimate. This exposes TRUE to a significant downside risk in the medium term should the company has not been able to attract subscribers as expected.
TRUE’s service revenue growth is expected to be in mid single digits for the next three years. Growth drivers are fixed-line broadband Internet and wireless non-voice services. TRUE’s ratio of operating margins before depreciation and amortization (operating margin) has dropped markedly since 2011. TRIS Rating expects TRUE’s operating margin to improve from 2014. However, the downside risks are rather material. This is because TrueMove’s 2G concession under CAT PLC (CAT) will expire in September 2013. It remains uncertain that the costs for TRUE to continue providing services on the 2G network after 2013 will be competitive. In addition, it remains highly uncertain how fast TRUE’s mobile segment could migrate TrueMove’s subscribers to a more cost-effective network, as well as scale down costs in the under-utilized 2G network.
TRIS Rating expects TRUE’s debt-to-capitalization ratio to peak in 2013 at around 85%, as debt financing is still required mainly to support mobile and broadband-cable network expansions. TRUE is expected to generate funds from operations (FFOs) in a range of Bt13-Bt16 billion per annum during 2013-2015. In the coming months, TRUE may need additional debt financing for 3G 2.1GHz license. TRIS Rating expects TRUE to raise new debts with an appropriate level of new equity injections, so as to prevent its capital structure and cash flow protections from weakening further, said TRIS Rating. — End
Company Rating: Affirmed at BBB Issue Ratings: TRUE13NA: Bt1,100 million senior debentures due 2013 Affirmed at BBB- TRUE144A: Bt6,183 million senior secured debentures due 2014 Affirmed at BBB TRUE144B: Bt1,800 million senior debentures due 2014 Affirmed at BBB- TRUE151A: Bt7,000 million senior secured debentures due 2015 Affirmed at BBB Up to Bt6,000 million senior debentures due within 2016 Affirmed at BBB- Rating Outlook: Negative from Stable
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