TRIS Rating has assigned the rating of “BBB-” to the proposed issue of up to Bt7,800 million in senior debentures of True Corporation PLC (TRUE). At the same time, TRIS Rating has affirmed the company rating and the current ratings of TRUE’s senior secured debentures at “BBB” and senior debentures at “BBB-”. The outlook remains “negative”. 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; established infrastructure in various technological platform; and expected supports from major shareholders. 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 “negative” outlook reflects TRUE’s weakened operating margins and heightened risks facing the mobile segment from the expiring 2G concession in 2013. TRUE’s ratings could be downgraded if the company’s performance is not expected to turnaround meaningfully by 2014, or its business profile is negatively impacted by the 2G concession expiry. However, the outlook could be revised back to “stable” if the mobile segment’s investments provide a sustainable competitive platform and TRUE’s capital structure is improving.
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 nine months of 2012, the three businesses contributed 27%, 62%, and 11% in terms of revenue.
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 supports from the CP Group, one of Thailand’s leading conglomerates. CP Group holds about 65% of TRUE’s outstanding shares.
Since 2011, TRUE has invested heavily in third generation (3G) network rollout. TrueMove H had been able to acquire around 2.5 million subscribers by the end of September 2012. TRUE’s mobile segment’s service revenue (excluding interconnection charge or IC) in the first nine months of 2012 grew by 13% from the same period a year ago, driven by a strong growth in non-voice services. However, cash flow generations have dropped as the segment’s network operating and subscriber acquisition costs have also increased markedly. TRUE is facing a significant risk should the company has not been able to attract subscribers as expected in the medium term.
TRIS Rating expects TRUE’s service revenue to grow in mid single digits for the next three years. Growth drivers are fixed-line broadband Internet and wireless non-voice services. TRUE’s operating margin (operating income before depreciation and amortization as a percentage of revenue) for the first nine months of 2012 was 18.8%. TRIS Rating expects TRUE’s operating margin to remain under tight competitive pressure in 2013 and gradually improve in 2014 when a meaningful number of subscribers has migrated to the 3G networks, which are subjected to lower regulatory costs.
TRUE’s near-term credit risk is relatively high as TrueMove’s 2G concession under CAT PLC (CAT) will expire in September 2013. It remains uncertain how the expiry will impact TRUE’s 2G services, as well as how much it will cost TRUE to acquire back the 1800 MHz frequency and provide services on the 2G network, which by then will belong to CAT.
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. TRUE is expected to generate funds from operations (FFO) in a range of Bt13-Bt16 billion per annum during 2013-2015. TRIS Rating expects TRUE’s debt-to-capitalization ratio to remain very high during 2013 - 2014, as debt financing is still required mainly to support mobile and broadband-cable network expansions. After which, TRUE should be able to start paying down its debts meaningfully.
Company Rating: BBB Issue Ratings: TRUE13NA: Bt1,100 million senior debentures due 2013 BBB- TRUE144A: Bt6,183 million senior secured debentures due 2014 BBB TRUE144B: Bt1,800 million senior debentures due 2014 BBB- TRUE151A: Bt7,000 million senior secured debentures due 2015 BBB TRUE16OA: Bt6,000 million senior debentures due 2016 BBB- Up to Bt7,800 million senior debentures due within 2017 BBB- Rating Outlook: Negative
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