TRIS Rating Co., Ltd. has placed the company rating of BTS Group Holdings PLC (BTSG) on CreditAlert with “negative” implication. The rating action follows BTSG’s announcement regarding its board resolution to sell the net farebox revenue of the Core BTS Skytrain System to the Infrastructure Fund (IFF). The Core BTS Skytrain System is operated by Bangkok Mass Transit System PLC (BTSC), a 97.5% subsidiary of BTSG, under the concession with the remaining period of 17 years. The IFF establishment will be subject to (i) approval by BTSG’s shareholders, (ii) the consent from BTSC’s bondholders on various amendments, and (iii) a minimum sale price of Bt50,000 million. The proceeds from the IFF transaction will be used partially to finance BTSG’s purchase of 33.33% stake in IFF, to be reserved as security for the full amount of principal and future interest payable under the terms of BTSC’s existing debentures, and to repay other remaining debts. The remainder of the proceeds will be retained within the group for future investment.
BTSG is a holding company, owning subsidiaries engaged in four main lines of business: mass transit, media, property development, and services. For the first half of fiscal year 2012/2013 (April - September 2012), BTSG reported a total revenue of Bt4,664 million, contributed by mass transit business (51%), operation and maintenance (O&M) services (11%), and media (30%). In terms of earnings before interest, tax, depreciation, and amortization (EBITDA), mass transit (including O&M services) and media contributed 77% and 28%, respectively. After the IFF transaction, BTSG’s future cash flow will be supported by O&M services, one-third of dividends paid by IFF to BTSG, and the growing media business overseen by its newly listed subsidiary, VGI Global Media PLC (VGI). The credit profile of BTSG will be impacted by the dilution of quality cash flow from mass transit business. Although the media business has illustrated a growth prospect in recent years, it is exposed to more volatile business risk compared to the skytrain.
However, there is no concern on liquidity since BTSG will use the proceeds from the IFF transaction to pay or reserve for all debt obligations. The fund raising and excess cash flow will strengthen BTSG’s financial profile in the short term due to very low leverage.
TRIS Rating expects to resolve the CreditAlert after the completion of the transaction and the direction of the group’s strategy regarding capital structure policy and future investment is concrete. — End
Company Rating: A CREDITALERT DESIGNATION: Negative
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