TRIS Rating Co., Ltd. has affirmed the company rating of True Corporation PLC (TRUE) and the ratings of TRUE’s senior secured debentures at “BBB”. TRIS Rating has also affirmed the rating of TRUE’s senior secured debentures, partially guaranteed by the International Finance Corporation (IFC), at “A”. At the same time, TRIS Rating has assigned the rating of “BBB” to TRUE’s proposed issue of up to Bt7,750 million in senior secured debentures. The rating outlook remains “stable”. The new issue rating replaces the “BBB” rating previously assigned by TRIS Rating on 19 November 2008 for the debentures of up to Bt6,750 million due within 2014 as TRUE decided to increase the issue size by Bt1,000 million. The upsizing will not affect the ratings and outlook of the company as the entire proceeds from the proposed debentures will be used to early redeem the TRUE112A debentures and to repay the TRUE097A debentures, resulting in no additional debt outstanding. This is to partially reduce refinancing risk on the back of uncertain developments in financial and capital markets worldwide.
The ratings reflect TRUE’s market position as the leading integrated telecommunications company in Thailand, growth prospects of data communications and mobile phone businesses, and its competent management team. These strengths are constrained by the company’s weak financial profile due to high leverage, fierce competition in cellular and data communication services, and uncertainty of the telecommunications regulatory framework. The “stable” outlook reflects the expectation that TRUE will sustain its strong market position in the telecom business and maintain competitive advantage by a service convergence platform. TRIS Rating will continue to monitor the company’s progress in terms of covenant waivers and debt reduction efforts. TRUE’s ratings could be negatively affected if the company decides to pursue major investments that require a substantial debt financing.
On 8 December 2008, TRIS Rating issued a press release raising concerns over TRUE’s credit profile given that True Move Co., Ltd. (TrueMove), a subsidiary of TRUE, might breach its net debt to EBITDA (earnings before interest, tax, depreciation and amortization) covenant in the fourth quarter of 2008. As of March 2009, TrueMove had already been granted waivers from all lenders for the period ended December 2008. TRIS Rating believes that TrueMove still has to manage a potential breach of covenant in coming quarters, but the company should be able to obtain waivers in a timely manner. In February 2009, TRUE raised Bt6.38 billion from a total of Bt19.5 billion in rights offering. The company plans to reserve Bt3.8 billion for near-term funding needs, depending on how much cash it can raise from bond sale in March 2009 and final resolution on the share repurchase scheme of Bangkok Inter Teletech PLC (BITCO), TrueMove’s parent company, in June 2009. The remaining Bt2.6 billion would be injected as TrueMove’s equity to shore up its balance sheet and covenant ratios.
TRIS Rating said that TRUE is Thailand’s leading integrated telecommunications service provider. Its three main businesses are TrueOnline, TrueMove and TrueVisions, which contributed 40%, 42% and 18% of total revenue in 2008, respectively. The company’s strong business profile is underscored by its leading positions in the fixed-line market in the Greater Bangkok and in the consumer broadband market, with market shares of around 50% and over 80%, respectively. TRUE is also the largest pay TV operator, operated under True Visions PLC, and is the third largest mobile phone operator in Thailand under the operation of TrueMove with a subscriber market share of almost a quarter in totals.
The telecommunications business is very competitive, particularly in the mobile phone sector. Competition is heightened by numerous price cutting campaigns and attractive promotional packages offered by mobile operators. This intense competition pressures the revenues and margins of the entire industry. TRUE’s fixed line business is trending downward like in other countries due to mobile phone substitution. However, bright prospects for data communications services mitigate declining fixed line revenue.
TRUE’s 2008 results are below expectation in terms of top-line growth and leverage reduction, driven by slowdown in subscriber growth and high interconnection charge (IC) payments in mid 2008. Revenue in 2008 was Bt61,265 million, a 0.6% drop from the previous year, driven by weak performance at TrueMove, partially offset by growth in TrueVisions and TrueOnline. Operating margin weakened slightly as a result of higher IC payments. As of year end 2008, net debt-to-capitalization ratio remained very high at 92.1%. The funds from operations (FFO) to total debt ratio was relatively stable at 15.6%.
TRIS Rating is cautious that weak consumer spending will continue to pressure TRUE’s performance for the remainder of 2009, though fundamental wise, we view telecom services as relatively more resilient against economic downturn than other industries. Refinancing risk remains a key concern for the medium term in view of tightening credit markets and insufficient internal cash generation to repay debts and fund capital expenditures. However, TRUE’s relatively stable and predictable cash flows, together with a strong support from Charoen Pokphand Group Co., Ltd. (CP), remain crucial factors underpinning its ratings. TRIS Rating also expects that TRUE will continue to explore and execute debt restructuring schemes in order to realign its cash flows with debt service obligations.
TRIS Rating said, while the credit ratings of the TRUE097A, TRUE107A, TRUE117A, TRUE127A and the new issues are based solely on TRUE’s creditworthiness, the credit rating of the TRUE112A issue is enhanced by a partial guarantee (50% of principal) provided by IFC. IFC is a member of the World Bank Group and is rated “AAA” by Standard & Poor’s and “Aaa” by Moody’s Investors Service.-- End
Company Rating: Affirmed at BBB Issue Ratings: TRUE112A: Bt6,750 million senior secured partially guaranteed debentures due 2011 Affirmed at A TRUE097A: Bt1,000 million senior secured debentures due 2009 Affirmed at BBB TRUE107A: Bt2,000 million senior secured debentures due 2010 Affirmed at BBB TRUE117A: Bt2,413 million senior secured debentures due 2011 Affirmed at BBB TRUE127A: Bt1,000 million senior secured debentures due 2012 Affirmed at BBB Up to Bt7,750 million senior secured debentures due within 2014 BBB Rating Outlook: Stable
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