TRIS Rating has affirmed the rating of “AA+” for Bangkok Metropolitan Administration, 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 of tax revenue, the balanced budget policy it utilizes, 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 projects, and an increase in BMA’s operating expenditures for BMA’s own responsibility and public services delegated from the central government. Despite undertaking various costly responsibilities, BMA has limited ability to seek additional revenue sources. In addition, some issues need to be carefully monitored, such as the timely availability of audited financial reports, BMA’s ability to balance the revenue and financial obligations 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. New debts, or any financial obligations from various contracts, should be well planned and take into consideration the proper levels of BMA’s revenue and debt service ability.
BMA is a local government which has the responsibility of providing public services for both residents and businesses in Bangkok, the capital city of Thailand. Bangkok benefits from its position as the social, political, and economic center of the country. In 2011, the gross provincial product (GPP) of Bangkok was the largest in the country, amounting to Bt3.33 trillion or 31.6% of Thailand’s gross domestic product (GDP). In terms of fiscal performance, most of BMA’s total revenue was from taxes, both local taxes collected by BMA and allocated taxes collected by other governmental agencies and remitted to BMA. Tax revenue is considered a highly reliable source of income, although the amount varies with the nation’s economy and the central government’s policies.
In fiscal year (FY) 2012, as the local economy continued to grow, BMA collected Bt59,549 million in revenue, an increase of 4% from the previous year. For the first nine months of FY2013, BMA’s revenue increased by 8% year-on-year (y-o-y) to Bt44,481 million. This amount accounted for 74% of BMA’s budget. In FY2012, local taxes collected by BMA comprised 18% of BMA’s total revenue. The major component of the local tax revenue in FY2012 was property taxes, which accounted for over 90% of total local taxes. The allocated taxes, collected by other governmental agencies, made up at 77% of BMA’s total revenue. Value added tax, automobile tax, and land transfer fees contributed 47%, 24%, and 17% of total allocated taxes, respectively. BMA posted expenditures of Bt67,588 million in FY2012, a 23% rise from the FY2011, as BMA spent additional expenditure to improve the water drainage system. As a result, BMA's cash on hand dropped from Bt20,144 million at the end of FY2011 to Bt14,187 million at the end of FY2012, to support balance deficit. Operating expenditures accounted for 73% of total expenditures in FY2012, meanwhile capital expenditures made up the rest. Operating expenditures increased to Bt49,463 million, an 18% rise from the previous year. The rise in operating expenditures will constrain BMA’s ability to invest in other infrastructure projects.
BMA’s total debt has substantially increased, climbing from Bt2,490 million in FY2010 to Bt7,289 million in FY2011 and to Bt8,768 million in FY2012. The increase was mostly from debt raised by its wholly-owned subsidiary, Krungthep Thanakom Co., Ltd. (KT). KT took out bank loans to finance the construction of the Silom extension phase II (Taksin-Petchkasem) of the Bangkok mass transit system (BTS) which it was mandated by BMA. In addition, BMA has contracted KT to procure, operate, and maintain the BTS for 30 years. KT subcontracted to Bangkok Mass Transit System PLC (BTSC). TRIS Rating considers the net present value of the electric train procurement as a financing arrangement granted to BMA. Under the terms of BTS operation and maintenance contract, BMA is liable to pay service fees which will gradually increase every year. As a result, BMA’s ratio of committed fee obligations to total revenue is expected to be around 3.7% in FY2013, compared with 1.6% in the FY2012. In the coming years, BMA may report its fiscal performance lower than actual level as BMA will not consolidate the revenue and expense from BTS’s project.
As the capital city of Thailand, BMA has to develop and invest public services and infrastructure to serve an expanding population and to facilitate economic growth. These projects require large amounts of funds. In addition to a tax revenue allocation, the central government also grants BMA an annual subsidy. However, subsidy are for certain purpose and insufficient. Thus, BMA has attempted to find additional funding for investment, for example, contracting KT to find financing and manage the projects. In addition, BMA is also studying to seek new potential revenue sources, such as increasing the tax rate or levying new taxes. However, tax collection is a sensitive issue because any tax increase requires a complicated and time-consuming Cabinet approval process, and will also affect voter popularity. TRIS Rating expects that BMA will carefully consider its investments in order to comply with the law and avoid impairing its financial strength.
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2013, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.