TRIS Rating Co., Ltd. has affirmed the company rating of True Corporation PLC (TRUE) and the ratings of TRUE’s senior secured debentures (TRUE07OA, TRUE087A, TRUE117A) at “BBB” and has also affirmed the rating of TRUE’s senior secured debentures (TRUE112A), which is partially guaranteed by the International Finance Corporation (IFC) at “A” and has changed TRUE’s rating outlook to “positive” from “stable”. The ratings reflect TRUE’s strong market position as the leading integrated telecommunications company in Thailand, its competent management team, and the growing prospects for its data communications and mobile phone businesses. These strengths are partially offset by the company’s vulnerable financial position which is the result of high leverage, fierce competition in cellular and data communication services, and the remaining uncertainty surrounding the telecommunications regulatory framework.
The “positive” outlook reflects the expectation that TRUE will be able to sustain its strong market position in the telecom business. After the consolidation of TRUE MOVE and UBC, the TRUE Group’s competitive advantage is strengthened, as it is able to bundle a variety of products and services in packages that meet customer demand. TRUE’s credit ratings will be revised upward if the company’s financial performance improves after its mobile business starts to generate cash for the Group. However, the ratings could be negatively affected if the company makes major investments that require substantial amounts of debt financing.
TRIS Rating reported that the TRUE Group is Thailand’s leading integrated telecommunications operator who operates six main business groups: wireline, wireless, data transmission, multimedia network, Internet and broadband, and pay TV. TRUE’s leadership is evidenced by its position as the fixed-line market leader in the Bangkok Metropolitan Area and as the consumer broadband market leader, with market shares of around 55% and 80%, respectively. Moreover, TRUE is also the largest pay TV operator and the third largest of mobile phone providers. TRUE’s wireless business operates mainly via True Move Co., Ltd. (TRUE MOVE), whose former name is TA Orange. TRUE has recently purchased an additional 58% of United Broadcasting Corporation PLC (UBC), raising its stake to 98%. This purchase will strengthen the Group’s ability to bundle and offer attractive products and services to customers.
TRIS Rating said that TRUE’s revenue significantly increased after TRUE MOVE was consolidated in the fourth quarter of 2004. However, TRUE’s financial status has deteriorated slightly, as a result of increased leverage and a decline in operating margin. TRUE’s net debt-to-capitalization ratio was very high at 100% as of December 2005. The funds from operations (FFO) to net debt ratio improved from 10% in 2004 to 15% in 2005, while
earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage stayed at around three times during 2004-2005. To acquire UBC, TRUE obtained a US$291 million bridge loan at the end of December 2005. This loan will be repaid partly from UBC’s cash and partly through refinancing with a long-term loan by mid-May 2006. The consolidation of UBC into TRUE will enhance the Group’s cash flow base. Currently, UBC is almost debt free and contributes both profits and a moderate cash flow stream. After the consolidation of UBC, TRUE’s EBITDA interest coverage and FFO to net debt ratio are expected to slightly improve, but the TRUE Group still carries a high debt burden.
TRIS Rating also said that the telecommunication business is considered very competitive, particularly in the mobile phone sector, which offers numerous price cutting campaigns that will dilute the profitability of all operators. TRUE’s fixed line business is trending downward due to substitution by mobile phones. However, the growing prospects for the data communications services and cellular businesses, which TRUE has been penetrating for a couple years, should help compensate for any decline in fixed line revenue. While the credit ratings of the TRUE087A, TRUE07OA and TRUE117A issues are based solely on TRUE’s creditworthiness, the credit rating of the TRUE112A issue is enhanced by a partial guarantee provided by the IFC, which is a member of the World
Bank Group that is rated “AAA” by Standard & Poor’s and “Aaa” by Moody’s Investors Service. — End
True Corporation PLC (TRUE)
Company Rating: Affirmed at “BBB”
Issue Ratings:
TRUE112A: Bt6,750 million senior secured partially guaranteed debentures due 2011 Affirmed at “A”
TRUE07OA: Bt1,941.62 million senior secured debentures due 2007 Affirmed at “BBB”
TRUE087A: Bt7,849.32 million senior secured debentures due 2008 Affirmed at “BBB”
TRUE117A: Bt2,413 million senior secured debentures due 2011 Affirmed at “BBB”
Rating Outlook: Changed to “Positive” from “Stable”