TRIS Rating has affirmed the company rating of Don Muang Tollway PLC (DMT) and the ratings of DMT’s existing senior unsecured debentures at “BBB+”. At the same time, TRIS Rating has assigned the rating of “BBB+” to DMT’s proposed issue of up to Bt800 million in senior unsecured debentures maturing in 2018. The outlook remains “stable”. The proceeds from the proposed debentures will be used to refinance DMT’s maturing debentures. The ratings reflect the strategic location of DMT’s tollway, low operating risk, and predictable operating cash flow, which is sufficient for DMT to meet its debt obligations despite the uncertainty surrounding a legal outcome. These strengths are partially offset by the reliance on cash flow generated by a single asset and unpredictable final verdict from the Supreme Administration Court concerning the latest amendment to the concession agreement.
The “stable” outlook reflects DMT’s stable and predictable operating performance and financial policies. DMT’s ratings could be upgraded if the final verdicts of the Supreme Administrative Court on the second and the third legal case affirm the MOA3 agreement. In contrast, the rating downside case may occur if DMT incurs too much debt or pays too much of its profits as dividends which would reduce its financial flexibility to an unacceptable level. An adverse legal outcome may also impact the ratings.
Founded in 1988, DMT constructed and now operates a 21-kilometer (km.) elevated tollway running from Din Daeng to the National Memorial Monument. The tollway was constructed under a Build-Transfer-Operate (BTO) concession granted by the Department of Highways (DOH). The concession was amended three times. The latest amendment to the concession agreement was made on 12 September 2007 (MOA3) according to the Cabinet resolutions on 11 April 2006 and 10 April 2007. The MOA3 was concluded as a remedy to offset losses DMT incurred as a result of government actions. The key amendments of the MOA3 dealt with an extension to the concession maturity from 2021 to 2034, and pre-approvals for the toll fee increases suggested in the previous amendment.
There were three legal cases related to the amendment of MOA3 at the Administrative Court. In the first case, the plaintiffs requested revocation of the Notification of the Highway Concession Director dated 14 December 2007, which covers the toll rate of tollway. On 19 April 2016, the Supreme Administrative Court reached a final verdict and dismissed the first case. In the second case, the plaintiffs claim that the Cabinet resolutions for the toll increases are illegal, and the amendment of MOA3 is null and void under the Private Participation Act. The Central Administrative Court dismissed the second case on 29 March 2012. In the third case, the plaintiffs claim that the notification of a toll rate adjustment in effect from 22 December 2009 was illegal since the Cabinet resolutions on 11 April 2006 and 10 April 2007, granting approval of MOA3, were illegal. On 18 August 2015, the Central Administrative Court’s verdict revoked the Cabinet resolutions in relation to the amendment of MOA3. DMT and the Ministry of Transport, following the Cabinet resolution on 15 September 2015, filed an appeal with the Supreme Administrative Court. Currently, the second case and the third case are under consideration by the Supreme Administrative Court. The final verdict for the remaining cases will take time. Since DMT has just a single asset, the severity of loss, if the Court’s order is unfavorable to DMT, is significant. In any case, DMT's management expects that the dispute will be resolved with some remedy or compensation to the company.
DMT continues to deliver good operating performance. Total traffic volume increased by 4.9% year-on-year (y-o-y) in 2015 and 16.5% in the first half of 2016. The rise in traffic was driven by the strong growth in the number of passengers at Don Mueang airport, the expansions of communities near the tollway, traffic congestion on public roads due to the development of the Red Line and Green Line extension mass transit system, and low oil price. DMT reported a rise in revenue due to a toll fee increase in December 2014. Revenue increased by 23% in 2015 and rose by 16.6% y-o-y in the first half of 2016. DMT’s operating profit margin improved from 78% in 2014 to 84% in the first half of 2016. Consequently, funds from operations (FFO) increased from Bt1,202 million in 2014 to Bt1,651 million in 2015 and stood at Bt945 million in the first half of 2016. The debt to capitalization ratio declined from 48% in 2014 to 43% as of June 2016, in tandem with the redemption of the debentures. At the end of December of 2016, total debt will decline to Bt4,768 million.
Going forward, DMT’s revenue is projected to grow continuously, supported by a terminal expansion at Don Mueang airport and greater numbers of passengers traveling by low-cost carriers. The operating profit margin will remain high and stable. The cash flow protection and leverage ratios will improve as DMT plans to pay down the outstanding debentures. DMT’s management holds the view that the company will continue to pay dividends of around Bt800-Bt1,000 million per annum, depending on the amount of cash available. However, the company plans to repay all interest-bearing debt within 2020 in order to reduce the risk brought on by an unfavorable court judgment.
Don Muang Tollway PLC (DMT)
Company Rating: BBB+
Issue Ratings:
DMT16NA: Bt400 million senior unsecured debentures due 2016 BBB+
DMT16NB: Bt800 million senior unsecured debentures due 2016 BBB+
DMT178A: Bt250 million senior unsecured debentures due 2017 BBB+
DMT17DA: Bt1,478 million senior unsecured debentures due 2017 BBB+
DMT19DA: Bt1,100 million senior unsecured debentures due 2019 BBB+
DMT20DA: Bt1,140 million senior unsecured debentures due 2020 BBB+
Up to Bt800 million senior unsecured debentures due within 2018 BBB+
Rating Outlook: Stable