TRIS Rating has assigned the rating of “A” to the proposed issue of up to Bt5,000 million in senior debentures of Bangkok Expressway PLC (BECL). At the same time, TRIS Rating has affirmed the company and current senior debenture ratings of BECL at “A” with “stable” outlook. The proceeds from the new debentures will be used to refinance BECL’s existing debentures which mature in 2013. The ratings reflect a solid track record of traffic volume on BECL’s expressways as it is the only toll road system linked to the First Stage Expressway System (FES). The ratings also take into consideration reliability of the company’s operating cash flows and the strong track record of BECL’s management team. These strengths are partially offset by the uncertainty over future government transportation policies, the government’s potential intervention in future toll rate adjustments, and the sizable investments required for any new expressway concession. The “stable” outlook reflects TRIS Rating’s expectation that BECL will continue to generate solid operating cash flows which will be reserved as a liquidity cushion. TRIS Rating also expects that the company will carefully manage dividend payments and its capital structure, especially during the investment period, in order to maintain its financial strength. Any investment with associate company should be prudently considered and not negatively impact the company’s credit quality.
BECL built and operates the elevated Si Rat Expressway (the Second Stage Expressway System or the SES) and the Udon Ratthaya Expressway (Bang Pa In-Pak Kret Expressway), known as SES Sector C+. Both expressways were established under 30-year Build-Transfer-Operate (BTO) concessions awarded by the Expressway Authority of Thailand (EXAT). The SES, the extension of the SES (Sector D), and the Sector C+ concessions will expire in 2020, 2027, and 2026, respectively. The SES is linked to the FES, which was constructed and has been operated by the EXAT. The connection of both expressways creates a comprehensive network which provides an alternative to the heavily congested free roads within central Bangkok and the suburbs. BECL shares toll revenue with EXAT on the urban network (SES Sector A and B) and is also eligible for revenue sharing of FES. However, the toll revenues from Sector D, C, and C+ are not required to be shared with EXAT. From March 2011 onward, the sharing ratio with EXAT was changed from 50:50 to 40% for BECL and 60% for EXAT. As a consequence, BECL’s average daily toll revenue in 2011 declined by 6.4%, despite a 5.2% increase in traffic volume. However, average daily toll revenue in 2012 was Bt21.1 million, rebounding to the same level before change in the revenue sharing ratio.
The traffic volume on BECL’s network has grown steadily since inception. The compound annual growth rate over the past 10 years (2001-2011) was 3.7%. In 2012, the average daily traffic volume was 1,084,576 vehicles per day, up 5.8% from 2011. The rise was mainly due to higher traffic volume on the suburban network. TRIS Rating expects that in the medium term, traffic volume on the expressways will continue to grow based on economic continued growth, steady increases in the number of registered cars in Bangkok and vicinity, a rising population in Bangkok, and more residential housing in the areas surrounding the city.
For the first nine months of 2012, BECL reported toll revenue of Bt5,751 million, up 2% compared to the same period of the prior year. The improvement was driven by a 5.8% increase in traffic volume, especially on the suburban network. BECL’s operating margin dropped slightly to 79.42%, compared with 81.16% in the same period of the prior year. The drop in the operating margin was due to the revenue sharing adjustment and higher selling and administrative expenses caused by higher insurance premiums and toll collection expenses.
Total debt decreased from Bt19,044 in 2011 to Bt17,292 million at the end of September 2012, following the scheduled debt repayments. The total debt to capitalization ratio decreased from 50.47% in 2011 to 45.67% at the end of September of 2012. The company’s cash flow protection remains strong. Funds from operations (FFO) was Bt4,603 million in 2011 and Bt3,367 in the first nine months of 2012. The FFO to total debt ratio stood at 24.17% in 2011 and 19.47% (non-annualized) in the first nine months of 2012. In the medium term, BECL’s debt is expected to increase because it has made new investment in Thai Tap Water Supply PLC and because BECL is constructing the Si Rat Outer Ring Road Expressway (Sector B+). The Sector B+ project is worth approximately Bt25,000 million and will be financed with operating cash flow and debt. Currently, the company has already secured a bank loan to partly support the funding of the project. The construction started in early 2013 and is scheduled to complete in 2016.
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