TRIS Rating has assigned the rating of “A” to the proposed issue of up to Bt22,000 million in senior unsecured debentures of Bangkok Mass Transit System PLC (BTSC). At the same time, TRIS Rating has affirmed the company rating of BTSC at “A”. The outlook remains “stable”. The new issue rating replaces the issue rating previously assigned on 7 October 2016, following BTSC’s request to increase the issue size to up to Bt22,000 million, from Bt20,000 million. The proceeds from the new debentures will be used to finance its investment in rolling stocks and the Electrical and Mechanical (E&M) System of Green Line Extension projects (Bearing-Samut Prakarn and Mochit-Sapan Mai-Khu Kot).
The ratings reflect BTSC’s proven track record as the first electric train operator in Thailand, the relatively high and stable profit margin from the train operations and media businesses, and the high possibility of being awarded the operation and maintenance contracts (O&M contracts) for the Green Line Extension. The investment in the E&M System of Green Line Extension helps strengthen its business profile. However, BTSC’s financial profile is expected to be weaker than the previous projection. Its leverage will increase significantly during the investment period and then decline once it transfers the E&M system to Krungthep Thanakom Co., Ltd. (KT), the project sponsor, in 2020. KT is a wholly-owned subsidiary of Bangkok Metropolitan Administration (BMA). BTSC is considered the core business unit of BTS Group Holdings PLC (BTS) and has been the key cash flow and profit contributor for BTS. Therefore, the credit profiles of BTSC and BTS are closely linked. Currently, BTS is rated “A” with a “stable” outlook by TRIS Rating.
The “stable” outlook is based on the expectation that BTSC will be able to maintain its stable cash flow and profit margin in the train operation and media businesses. Development of the new project is expected to be smooth and on schedule. The rating and/or outlook could be revised downward if the financial position of BTSC and the BTS Group significantly deteriorate from the projections, which could be the result of aggressive debt-funded investments and/or the significantly deteriorated operating performance of the BTS Group. BTSC’s credit upside is limited, given the large capital expenditures planned over the next couple of years.
Since BTSC is considered the core subsidiary of BTS, BTSC’s rating will be aligned with the rating of BTS. Any change in BTS’s credit rating will also impact the rating of BTSC.
In June 2016, BTSC signed an agreement with KT to supply and install the E&M system for the Green Line Extension projects (Bearing-Samut Prakarn and Mochit-Sapan Mai-Khu Kot). The total project cost is approximately Bt20 billion. At the same time, BTSC signed a lump-sum fixed price contract with a consortium, comprising Bombardier Transportation Signal (Thailand) Ltd., ST Electronics (Thailand) Ltd., and AMR Asia Co., Ltd. to supply and install the E&M system. This helps mitigate the cost overruns risk. KT will pay all project costs, including accrued interest, to BTSC within four years or it can extend the payment for another two years.
BTSC was established in 1992 to build and operate the Bangkok Mass Transit System (BTS Skytrain) under a 30-year concession (from 1999-2029) awarded by the BMA, rated “AA+/Stable” by TRIS Rating. Under the terms of the concession, the company has the right to collect fares and undertake all commercial activities on the BTS Skytrain lines (the core lines), covering 17 kilometers (km.) of the Sukhumvit line (Mo chit-On nuch) and 6.5 km. of the Silom line (National Stadium-Taksin Bridge). BTSC was acquired by BTS in May 2010. As of June 2016, BTS held a 97.46% stake in BTSC. BTSC was awarded a 30-year O&M contract (from 2012-2042) from KT. The contracts call for BTSC to provide O&M services for the extensions of the Silom line (Wong Wian Yai-Bang Wa) and the Sukhumvit line (On Nut-Bearing) plus the core lines after the end of the concession in 2029. In 2013, the company sold its future net farebox revenue from the core lines to the BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF) for Bt61 billion.
BTSC carries out commercial activities through its subsidiary, VGI Global Media PLC (VGI). Initially, VGI provides media and commercial area services on the BTS Skytrain. VGI expands its scope of business and now offers other out-of-home media services. In addition, the company provides a ticketing system through its 90% holding subsidiary, Bangkok Smartcard System Co., Ltd. For the fiscal year 2016 (FY2016 – April 2015-March 2016), BTSC’s revenue came from advertising services (41%) and O&M service fees (41%), while other services contributed the rest.
In FY2016, BTSC’s revenues declined to Bt4,001 million, compared with Bt4,952 million in FY2015. The drop was due to the termination of advertising business in modern trade outlets. In the first quarter of FY2017, even though the company posted a slight drop of revenue in media services, BTSC’s total revenue still increased by 4.0% year-on-year (y-o-y) to Bt1,053 million in tandem with the growth of O&M services and other services. BTSC’s operating profit margin was high at 45%-55% in FY2014 through the first quarter of FY2017.
At the end of June 2016, its total debt to capitalization ratio stood at 6.8%. Going forwards, BTSC’s financial profile is expected to weaken from the current level. For 2017-2019, TRIS Rating expects revenue will range between Bt5,000-Bt6,500 million. BTS’s operating profit margin is forecast to remain high at over 40%. As the company plans to issue new debentures to finance the investment of rolling stocks and the E&M system, the company’s total debt to capitalization ratio is expected to increase to around 50%. Its net debt to EBITDA is expected to rise to around 6-7 times during the investment period but should decline to stay below 3.5 times after the project is completed.
The company’s liquidity profile is strong, supported by BTSC’s cash on hand of Bt1,660 million and short- and long-term investment worth Bt5,882 million. Although BTSC’s cash flow substantially declined after the BTSGIF transaction, its funds from operations (FFO) to total debt ratio improved from 43.3% in FY2013 to 101.7% in FY2016 following debt repayments. The earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio increased from 6.6 times in 2013 to 10.0 times in FY2016. For the first quarter of FY2017, the company reported FFO of Bt605 million. The FFO to total debt ratio and the EBITDA interest coverage ratio stood at 89.7% (annualized, from the trailing 12 months) and 12.2 times, respectively. As of June 2016, the company and subsidiaries had undrawn credit facilities of around Bt5,160 million, with long-term debt repayment obligations of around Bt1,395 million due during the next 12 months. As of June 2016, the company’s outstanding short-term obligations were Bt440 million.
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