TRIS Rating Co., Ltd. has affirmed the rating of “AA+” for Bangkok Metropolitan Administration, a local government organization, hereinafter is referred as “BMA” with “stable” outlook. The rating is based on the importance of the Bangkok Metropolis (Bangkok) as Thailand’s administrative and economic center. The rating also reflects BMA’s reliable streams tax revenue, consistently sound budgetary performance, and its strong financial profile derived from 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 restrictions on the sources of additional revenue. In addition, some issues to be monitored are the timely availability of audited financial reports, BMA’s ability to balance amounts of debt and revenue used to fund future investments, and 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. New debts, if incurred in the future or any financial obligations from investments made through its subsidiary, should be well planned and taken into consideration the proper levels of BMA’s revenue and debt service ability.
TRIS Rating reported that BMA is a local government organization which 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 Bt3.14 trillion or 29% of Thailand’s gross domestic product (GDP). In terms of fiscal performance, approximately 92%-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 (69%-76%). 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. In fiscal year 2011, automobile tax and land transfer fees contributed 23% and 18% of total allocated taxes, respectively. During fiscal years 2009 and 2010, the contribution from land transfer fees declined to approximately 10% of total allocated taxes. The drop was the result of the central government’s economic stimulus package, which aimed to revive the real estate industry. The real estate industry stimulus package expired in fiscal year 2011. Tax revenue is considered a highly reliable source of income for BMA, although the amount varies with the nation’s economy and the central government’s policies.
In fiscal year 2011, the local economy continued to grow, resulting in a significant increase in allocated taxes. Consequently, in fiscal year 2011, revenue collection accounted for 125% of BMA’s total Bt46,000 million budget, or an increase of 24% from the previous year. The growth was amplified by a 32% rise in allocated taxes. Meanwhile, BMA’s expenditures rose by 15%, compared with fiscal year 2010. As a result, BMA's cash on hand increased from Bt17,046 million at the end of fiscal year 2010 to Bt20,144 million at the end of fiscal year 2011. BMA was adversely affected by the severe flood in late 2011. However, for the first nine months of fiscal year 2012, the post-flood economic revival led to a 4% year-on-year (y-o-y) increase in tax collections. The flood caused BMA to increase additional expenditure budget by Bt15,000 million in fiscal year 2011. A significant portion of the additional expenditures was invested in the water drainage improvement system. BMA’s leverage was increased although BMA made no direct borrowing from a financial institution. BMA’s wholly-owned subsidiary, Krungthep Thanakom Co., Ltd. (KT), took out new bank loans to finance the construction of the Silom extension phase II (Taksin-Petchkasem) of the Bangkok mass transit system. In addition, KT's liability takes into consideration the 30-year contract it granted to Bangkok Mass Transit System PLC (BTSC). BTSC was awarded the contract to operate and maintain the Bangkok mass transit system for 30 years. The contract also included a requirement that BTSC purchase new trains for the sky train system. TRIS Rating considers the net present value of the electric train procurement expenditure as a financing arrangement granted to BMA. Thus, in fiscal year 2012, BMA’s financial profile is expected to soften slightly due to the higher expenditures and the increasing indebtedness. However, BMA’s liquidity position was maintained at a satisfactory level, as it continues to have 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 projects transferred from the central government, require large amounts of funds for project development and continual operating expenditures. Besides a tax revenue allocation, the central government also grants BMA an annual subsidy. However, these funding sources are limited and insufficient. BMA has started investing in many capital-intensive public transportation projects, through KT as an investing arm. TRIS Rating expects that BMA will prudently consider and structure these types of investments in order to comply with the existing regulatory framework and avoid significantly impairing its financial strength, said TRIS Rating. — End
Issuer Rating: Affirmed at AA+ Rating Outlook: Stable
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