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 sources of tax revenue, balanced budget policy, and strong financial profile which are 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 its own administration and the responsibilities delegated to BMA from the central government. Despite undertaking a number of costly responsibilities, BMA has a limited ability to seek additional revenue sources. In addition, some issues which could affect BMA’s rating, need to be carefully monitored, such as the timely availability of audited financial reports, BMA’s investment plan and its ability to secure source of fund, and the development of a concrete debt management framework.
The “stable” outlook reflects BMA’s reliable revenue sources and balance budget policy. TRIS Rating expects that BMA will continue to receive support from the central government at all time. BMA’s rating could be upgraded if BMA has a clear financial management framework for its investments, a substantial improving liquidity, and a disclosure of audited financial statement in timely manner. In contrast, the rating downside may occur if BMA runs budget deficit on a prolonged period or if it makes an aggressive debt-funded investment which incurs high debt service obligation and deteriorates its liquidity profile.
BMA is a local government which has the responsibility of providing public services for both residents and businesses in Bangkok. As the capital city of Thailand, Bangkok is the social, political, and economic center of the country. In 2013, the gross provincial product (GPP) of Bangkok was the largest in the country, amounting to Bt3.97 trillion or 30.8% of Thailand’s gross domestic product (GDP). In terms of fiscal performance, most of BMA’s 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) 2014, despite a slowdown in the economy nationwide, BMA’s total revenue increased by 5.5% to Bt66,556 million. In FY2014, local taxes comprised 18% of BMA’s total revenue. The major component of the local tax revenue was property taxes, which accounted for 92% of total local taxes. The allocated taxes made up 77% of total revenue. Value added tax, automobile tax, and land transfer fees, comprise 45%, 24%, and 20% of total allocated taxes, respectively. In FY2014, BMA budgeted Bt5,000 million for additional expenditures and reported total expenditures of Bt68,982 million, a 1% rise from FY2013. As a result, BMA posted a net deficit of Bt2,426 million, and the balance after capital expenditures to revenue ratio of -3.65%. BMA’s operating expenditures accounted for 77% of total expenditures in FY2014; capital expenditures made up the rest. In FY2014, operating expenditures slightly increased, rising by 1.3% to Bt53,500 million. The high level of operating expenditures will constrain BMA’s ability to invest in new infrastructure projects. At the end of FY2014, BMA retained cash on hand of Bt10,666 million which is served as liquidity. BMA’s annual revenue and expenditure report, as published in the Royal Gazette, are lower than the actual amounts as BMA has not yet consolidated the revenues and expenses from the Bangkok mass transit system’s (BTS) extension project.
For the first nine months of FY2015, BMA’s revenue increased by 11% year-on-year (y-o-y) to Bt54,136 million. The rise was supported by strong growths in the value added tax and excise tax collections. At the fiscal year end, TRIS Rating expects BMA will have the total revenue of around Bt68,500 million. As BMA’s budget calls for Bt65,000 million in expenditures, BMA will likely incur a budget surplus of approximately Bt3,500 million. Thus, in FY2015 the ratio of balance after capital expenditures to revenue will be positive, after BMA posted a negative ratio during the past three years. In the next three fiscal years, TRIS Rating expects BMA’s revenue will grow at a moderate rate, in tandem with the expansion of the economy.
BMA’s total debt slightly increased from Bt11,198 million in FY2013 to Bt12,176 million in 2014. TRIS Rating considered BMA’s debt to include (i) the loan of subsidiary, Krungthep Thanakom Co., Ltd. (KT), in financing the construction of the BTS Silom extension phase (Taksin-Petchkasem), (ii) the net present value of BTS’s electric train procurement expenditures, in accordance to the Operating and Maintenance Agreements, and (iii) the net present value of hire purchase contracts for fleets of cars and garbage trucks. During FY2013-FY2014, BMA’s total debt to revenue ratio was 18%.
In 2015, BMA is discussing with the Mass Rapid Transit Authority of Thailand (MRTA) for a plan to transfer the management and operation of two BTS extensions to BMA. The two BTS extensions are the Bearing – Samut Prakan route and the Mo Chit – Saphan Mai – Khu Khot route. Currently, MRTA is responsible for building the infrastructure of these two projects which are expected to finish in 2017 and 2020, respectively. Total construction costs are approximately Bt54,000 million. The projects will be transferred to BMA after the construction is completed. In addition, BMA is studying to construct the grey line sky train, a monorail routing from Watcharapol to Thong Lor. The project is on the public hearing and environmental impact assessment. The project cost is estimated at around Bt26,000 million. To assess the impact to BMA’s credit profile, TRIS Rating will closely monitor the progress of the projects and BMA’s financing alternatives.
BMA’s annual debt service obligations take into consideration the fees and charges payable specified in a number of long-term contracts. Those include the service payments for the operation of the BTS extension and the Bus Rapid Transit service (BRT), rental payments for car fleets, and scheduled debt repayments. BMA’s ratio of debt service obligations to total revenue increased from 5.5% in FY2013 to 6.3% in FY2014 as the BTS service payments rose. The ratio is expected to be in a range of 6%-7% in the next three years.
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 2015, 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, without the prior written permission of TRIS Rating Co., Ltd. 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.