TRIS Rating has assigned the rating of “BBB-” to the proposed issue of up to Bt12,000 million in senior debentures of True Corporation PLC (TRUE). At the same time, TRIS Rating has affirmed the company rating of TRUE and the existing ratings of TRUE’s senior secured debentures at “BBB” and senior debentures at “BBB-”. The outlook remains “negative”. TRUE plans to use most of the proceeds from the new debentures to repay its existing secured debts. 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 quarter of 2013, the three businesses contributed 25%, 65%, and 10% 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 expected continuing supports from the CP Group, one of Thailand’s leading conglomerates. The CP Group holds about 65% of TRUE’s outstanding shares.
Since 2011, TRUE has invested heavily in third generation (3G) network rollout, driving the mobile segment’s service revenue from Bt27.2 billion in 2011 to Bt31.2 billion in 2012. For the first quarter of 2013, the mobile segment’s service revenue stood at Bt8.5 billion, up 14% from the same period a year ago. However, TRUE’s cash flow generations have not improved accordingly as network operating costs and subscriber acquisition expenses have also increased markedly. TRUE is still facing a significant risk should the company has not been able to improve its bottom line as expected in the medium term. In addition, TRUE’s mobile segment is facing a high risk regarding the TrueMove’s 2G concession under CAT PLC (CAT), which 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’s service revenue to grow on average 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 quarter of 2013 was 19.8%. 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.
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. In addition, TRUE is expected to generate funds from operations (FFO) in a range of Bt13-Bt16 billion per annum during 2013-2015. The capital expenditures over the next three years are also expected to be close to the estimated FFO levels, leaving marginal rooms for debt reductions in the medium term. TRIS Rating expects TRUE to increase debts outstanding with an appropriate level of new equity injections, so as to prevent its capital structure and cash flow protections from weakening further. The ratings of TRUE’s senior debentures are one notch below the company rating due to a high level of secured debts compared with total assets.
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- TRUE174A: Bt7,800 million senior debentures due 2017 BBB- Up to Bt12,000 million senior debentures due within 2017 BBB- Rating Outlook: Negative
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