TRIS Rating has assigned a rating of “A” to the proposed issue of up to Bt4,000 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”. The outlook remains “stable”. The new issue rating replaces the issue rating previously assigned on 27 January 2014, following BECL’s request to increase the issue size to up to Bt4,000 million, from Bt3,000 million. The proceeds from the new debentures will be used to refinance BECL’s existing debentures which mature in 2014 and finance its investment. The ratings reflect the stability and reliability of the company’s operating cash flows derived from a solid track record of traffic volume on BECL’s expressway network. These strengths are partially offset by the uncertainty over future government transportation policies 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 performance and stable cash flows. In addition, the company is expected to employ cautious financial policies during the investment period so as to maintain its credit rating quality.
BECL built and operates the elevated Si Rat Expressway (the Second Stage Expressway System -- SES) and the Udon Ratthaya Expressway (Bang Pa In-Pak Kret Expressway), known as 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 Chalerm Mahanakorn Expressway (the First Stage Expressway System -- 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 for the route travelling north. BECL shares toll revenue with EXAT on the FES and SES Sector A and B. From March 2011 until the end of the concession, the revenue sharing ratio was 40% for BECL and 60% for EXAT. The toll revenues from the suburban network, consisting of Sector C, D, and C+, are not required to be shared with EXAT. In addition, BECL was awarded the concession for the Si Rat-Western Bangkok Outer Ring Road Expressway (SOE). The concession is a BTO concession, covering 30 years, including a construction period of up to 48 months. BECL will receive 100% of the tolls it collects. The total project cost is Bt25,491 million. The construction began on 15 December 2012 and scheduled to be completed in December 2016. The progress of the SOE project is as planned.
BECL’s strong business profile is supported by a steady growth in traffic volume on BECL’s network. In September 2013, toll rates on the FES and SES rose by Bt5-Bt10, depending on the type of vehicle. Toll rate on the Sector C+ also rose in November 2013 by Bt5 for 6-10 wheels vehicles and Bt10 for over 10-wheel vehicles. Despite the rise in toll fee, the average daily traffic volume in 2013 still grew by 1.4% to 1.100 million trips per day, compared with 1.085 million trips per day in 2012. Meanwhile, daily revenue increased by 4.3% over the same period to Bt22 million per day. TRIS Rating views that the toll road usage looks set to grow moderately supported by the increase in the number of cars registered in Bangkok and the vicinity and expansion of residential property in the outskirts area. However, the prolonged political instability, weaker economy, and rising household debt will negatively impact demand on toll road.
BECL’s financial strength is average. The operating leverage drives healthy profitability. However, its leverage is high, following the capital intensive nature of its business. For the first nine months of 2013, BECL reported a toll revenue of Bt5,941 million, up by 3.3%, compared with the same period a year earlier. TRIS Rating expects that revenue will continue to grow by around 2%-4% annually over the next three years. The company’s liquidity remained strong. The funds from operation (FFO) to total debt ratio was 29.10% (annualized from the trailing 12 months). Under TRIS Rating base scenario, BECL is expected to generate FFO of Bt5,000-Bt5,600 million per annum over the next three years so as to support its financial obligations, planned capital expenditures, and dividend payments. In terms of capital structure, TRIS Rating expects that the company’s financial leverage will further increase in the medium term due to the investment needed for the SOE project. BECL plans to finance approximately 75% of the total SOE project cost, or about Bt19,000 million, with long-term debt. The remaining balance will be funded by its operating cash flow. As a result, the debt to capitalization ratio is expected to gradually rise and peak at around 60% while the new expressway is under construction.
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