Thai Rating and Information Services Co., Ltd. (TRIS) announced Tuesday 31 October 2000 that it upgrades the rating of United Communication Industry PLC's (UCOM) Bt2,282 million senior debentures due 2003 to "BB+" from "BB." The upgrade is based on UCOM's significant reduction in debt position following its strategic-partnership agreement with Telenor Asia Pte Ltd. (Telenor) and the expectation that the partnership will enhance UCOM group's competitive position in the telecommunication business. Given the change in the status of Total Access Communication PLC (TAC) from a subsidiary of UCOM to an associated firm, the rating still reflects the benefits from strong growth in the cellular phone market. However, UCOM's rather weak financial profile, in terms of its profitability and cash flow protection, remains as a constraint to the rating. The outstanding amount of UCOM#1 debentures due in 2003 was Bt1,121 million at the end of 30 September 2000.
TRIS reported that UCOM and its major subsidiary-turned-associated company, TAC, entered into strategic-partnership agreement with Telenor, Norway's state-owned telecommunication operator, in May 2000. Now Telenor holds 24.8% of UCOM shares. Telenor also acquired 28.8% in TAC, while UCOM's share in TAC decreased from 65% to 41.6%. The strategic-partnership agreement is valued at US$701 million with US$249 million going to UCOM, US$263 million to TAC, and US$189 million to Somers, the UK investment fund. All cash payments were completed in August 2000. UCOM used most of the capital investment from Telenor to reduce its debt, which is mostly in foreign currencies. At mid-year 2000, the company's restructured debt, which is the majority of its total debt (excluding TAC's), was US$441 million. It was reduced 49% to US$224 million in September 2000. This significant debt prepayment has alleviated UCOM group's high leverage, and its debt-to-capitalization is expected to drop sharply from a high of 93.87% in 1999 to approximately 59.10% by the end of 2000.
TRIS said that the cellular market is expanding substantially, evidenced by the healthy subscriber growth of 16% in 1999 and 28% by mid-2000. Thailand's relatively low mobile penetration rate, 4.2%, suggests the market has good potential for more growth. TAC will benefit from its strong partner, Telenor, and should be well-positioned to capture part of this growing market. The rest of UCOM group will also likely integrate Telenor's expertise into its business and create a competitive group synergy, especially for the broadband and the Internet business. Telenor's involvement has also enhanced the group's bargaining power for equipment procurements.
UCOM group's operating margin (before depreciation and amortization) improved from 30.65% for 1999 to 36.16% for mid-year 2000. The company's much-needed pretax return on permanent capital, which stood at a 7.89% for 1999, improved but remained low at 10.71% for mid-year 2000. While UCOM group's 1999 EBITDA interest coverage was a low 1.64 times, its funds-from-operation (FFO) to total-debts also stood unimpressively at 5.27%. According to mid-year 2000 results, both indicators remain unsound.
United Communication Industry PLC (UCOM) Issue Rating UCOM#1: Bt2,282 million senior debentures due 2003 Upgraded to BB+ from BB