Thai Rating and Information Services Co., Ltd. (TRIS) announced that it has assigned the company rating of TelecomAsia Corporation PLC (TA) at "BBB." The rating reflects TA's leading position in Bangkok's fixed-line telephone market, its favorable position as an integrated telecommunication operator, and TA's talented management team. Also factored into the ratings is the strong support TA receives from CP Group and Verizon Communications. However, counterweights to these strengths are TA's vulnerable financial position, particularly its high leverage, and the uncertainty of the current telecommunication regulatory framework. The company's challenge to maintain stable growth in its fixed-line business amid the strong growth of mobile phones, which are considered a quasi-substitution service, is also a rating concern.
TRIS reported that the Telephone Organization of Thailand (TOT) awarded TA the sole concession to provide 2.6 million fixed telephone lines to the Bangkok metropolitan area under a 25-year Build-Transfer-Operate contract, which ends in 2017. Bangkok's fixed-line market is a duopoly between TA and the TOT. TA completed network installation in 1996. It has steadily gained significant market share, from 2% in 1993 to 53% in 1H/01, at the expense of its concession-owner-cum-competitor, the TOT. TA's competitiveness comes from its marketing-oriented strategy. The competence of TA's management team reflects from how it strongly positioned the company as one of the country's most integrated telecommunication operators. The variety of services TA can provide, through sharing the underlying assets of its fiber optic network, creates a noteworthy business synergy. The company also receives strong backup from its major shareholders in terms of business deal support, technical and operational know-how, and professional experts.
However, TA's huge initial investment and the sharp depreciation of the baht since 1997 have left the company with a rather weak financial status. Despite debt-restructuring and recapitalization in 2000, TA's debt-to-capitalization stood at an unusually high 88.20% in 2000 and peaked at 92.89% in 1H/01 because of the company's reduced equity base. TA's operating margin rested acceptably at 45.99%. In contrast, it reported a low annualized pretax return on permanent capital of 1.69% in 1H/01. The annualized funds-from-operation to total debt was relatively low at 7.41% in 1H/01, a negligible increase from 6.27% in 2000. EBITDA interest coverage came in at 1.75 times in 1H/01 compared to 2.33 times in 2000 due partially to the gain and loss realization at TA's subsidiaries; without this effect, the ratio improved to 2.06 times in 1H/01 from 1.87 times in 2000.
The successful launch of baht debentures to refinance most of TA's US dollar loan together with an expected currency swap of its US dollar loan to baht will significantly reduce TA's foreign currency exposure. Meanwhile, an expected share swap with Bangkok Inter Teletech Co., Ltd. (BITCO), the 99% shareholder of the relaunched mobile operator CP Orange, should materially enhance TA's equity base and improve its capital structure though its leverage remains high.
TRIS said that the recent surge in popularity of mobile phones could constrain the growth of fixed-line and Personal Communication Telephone (PCT) services. Mobile phones become a potential threat to TA's revenue from domestic long distance calls because of the mobile phone services' pricing flexibility. TRIS expects this trend will continue. Conversely, fixed-line services have also benefit from the increasing volume of calls made to mobile phones. TRIS also said that delays in liberalizing of the telecommunication sector cloud the picture of the industry outlook and create an uncertain future for market participants. The establishment of the National Telecommunication Commission (NTC), a new regulatory body that is to formulate the regulatory framework for the industry's future, has been postponed for an undetermined period. Furthermore, unresolved negotiation over TA's concession conversion leaves another aspect of TA's future uncertain.
TelecomAsia Corporation PLC (TA) Company Rating Senior debt BBB
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TRIS reported that the Telephone Organization of Thailand (TOT) awarded TA the sole concession to provide 2.6 million fixed telephone lines to the Bangkok metropolitan area under a 25-year Build-Transfer-Operate contract, which ends in 2017. Bangkok's fixed-line market is a duopoly between TA and the TOT. TA completed network installation in 1996. It has steadily gained significant market share, from 2% in 1993 to 53% in 1H/01, at the expense of its concession-owner-cum-competitor, the TOT. TA's competitiveness comes from its marketing-oriented strategy. The competence of TA's management team reflects from how it strongly positioned the company as one of the country's most integrated telecommunication operators. The variety of services TA can provide, through sharing the underlying assets of its fiber optic network, creates a noteworthy business synergy. The company also receives strong backup from its major shareholders in terms of business deal support, technical and operational know-how, and professional experts.
However, TA's huge initial investment and the sharp depreciation of the baht since 1997 have left the company with a rather weak financial status. Despite debt-restructuring and recapitalization in 2000, TA's debt-to-capitalization stood at an unusually high 88.20% in 2000 and peaked at 92.89% in 1H/01 because of the company's reduced equity base. TA's operating margin rested acceptably at 45.99%. In contrast, it reported a low annualized pretax return on permanent capital of 1.69% in 1H/01. The annualized funds-from-operation to total debt was relatively low at 7.41% in 1H/01, a negligible increase from 6.27% in 2000. EBITDA interest coverage came in at 1.75 times in 1H/01 compared to 2.33 times in 2000 due partially to the gain and loss realization at TA's subsidiaries; without this effect, the ratio improved to 2.06 times in 1H/01 from 1.87 times in 2000.
The successful launch of baht debentures to refinance most of TA's US dollar loan together with an expected currency swap of its US dollar loan to baht will significantly reduce TA's foreign currency exposure. Meanwhile, an expected share swap with Bangkok Inter Teletech Co., Ltd. (BITCO), the 99% shareholder of the relaunched mobile operator CP Orange, should materially enhance TA's equity base and improve its capital structure though its leverage remains high.
TRIS said that the recent surge in popularity of mobile phones could constrain the growth of fixed-line and Personal Communication Telephone (PCT) services. Mobile phones become a potential threat to TA's revenue from domestic long distance calls because of the mobile phone services' pricing flexibility. TRIS expects this trend will continue. Conversely, fixed-line services have also benefit from the increasing volume of calls made to mobile phones. TRIS also said that delays in liberalizing of the telecommunication sector cloud the picture of the industry outlook and create an uncertain future for market participants. The establishment of the National Telecommunication Commission (NTC), a new regulatory body that is to formulate the regulatory framework for the industry's future, has been postponed for an undetermined period. Furthermore, unresolved negotiation over TA's concession conversion leaves another aspect of TA's future uncertain.
TelecomAsia Corporation PLC (TA) Company Rating Senior debt BBB
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