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 a low level of 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 the high 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 plans and its ability to secure funds, and the development of a concrete debt management framework.
The “stable” outlook reflects BMA’s reliable revenue sources and balanced budget policy.
TRIS Rating expects that BMA will continue to receive support from the central government at all times. BMA’s rating could be upgraded if BMA has a clear financial management framework for its investments, a substantial improvement in liquidity, and disclosed audited financial statement in a timely manner. In contrast, the rating downside case may occur if BMA runs a budget deficit for a prolonged period or if it makes an aggressive debt-funded investment that carries a high debt service obligation and deteriorates its liquidity profile.
BMA is a local government which is responsible for 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 2014, the gross provincial product (GPP) of Bangkok was the largest in the country, amounting to Bt4.13 trillion or 31.4% 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 will vary with the nation’s economy and the central government’s policies.
In fiscal year (FY) 2015, BMA’s total revenue increased by 4% to Bt69,248 million in tandem with the recovery of the domestic economy. In FY2015, local taxes comprised 18% of BMA’s total revenue. The major component of the local tax revenue stream was property taxes, which accounted for 92% of total local taxes. Allocated taxes made up 77% of total revenue. Value added tax, land transfer fees, and automobile tax comprise 46%, 22%, and 20% of total allocated taxes, respectively. In FY2015, BMA reported total expenditures of Bt64,509 million, a 6.5% decline from FY2014. As a result, BMA posted a net surplus of Bt4,739 million. The ratio of the balance after capital expenditures to revenue improved to 6.84% in FY2015 from -3.65% in FY2014. BMA’s operating expenditures accounted for 77% of total expenditures in FY2015; capital expenditures made up the rest. In FY2015, operating expenditures decreased by 7.1% to Bt49,682 million. The drop in operating expenditures means BMA will increase the capital budget which enhances its ability to invest in other new infrastructure projects. At the end of FY2015, BMA retained cash on hand of Bt13,040 million which was served as a liquidity buffer. BMA’s annual report of revenue and expenditures, 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 (BTS) extension project.
For the first nine months of FY2016, BMA’s revenue decreased by 1.8% year-on-year (y-o-y) to Bt53,184 million due to drops in land transfer fees and value added tax. By the end of the fiscal year, TRIS Rating expects revenue will reach around Bt70,000 million. As BMA’s budget calls for Bt70,000 million in expenditures, BMA will likely incur a balance budget. Over 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 decreased slightly, falling from Bt12,176 million in FY2014 to Bt12,090 million in 2015. TRIS Rating considers BMA’s debt includes (i) the loans of a subsidiary, Krungthep Thanakom Co., Ltd. (KT), taken out to finance the construction of the BTS Silom Line 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-FY2015, BMA’s total debt to revenue ratio was 18%.
In 2016, BMA signed a memorandum of understanding (MOU) with the Mass Rapid Transit Authority of Thailand (MRTA) to transfer the management and operation of two Green Line extension projects to BMA. The Green Line extension projects are the Bearing – Samut Prakan route and the Mo Chit – Saphan Mai – Khu Khot route. Currently, MRTA is responsible for building the infrastructure for these two projects. Construction is expected to finish in 2017 and 2020, respectively. Total construction costs are approximately Bt60,000 million. The projects will be transferred to BMA after the construction is completed. BMA must invest and pay for the electrical and mechanical (E&M) system for both Green Line extensions. The cost of the E&M system is estimated at around Bt20,000 million. BMA has assigned KT to handle the management and operation of the project. In addition, BMA is studying plans for other Skytrain routes but it will need more funds for these investments. To assess the impact on BMA’s credit profile, TRIS Rating will closely monitor the progress of the projects and BMA’s financing alternatives. TRIS Rating expects that BMA will prudently consider its investments and create a concrete debt management framework and an appropriate debt repayment scheme.
BMA’s annual debt service obligations take into consideration the fees and charges payable specified in a number of long-term contracts. Those fees and charges 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 was 6.3% during FY2014-FY2015. The ratio is expected to increase in the next three years, if KT borrows more debt to finance its investment plans.
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