TRIS Rating Co., Ltd. has affirmed the company rating of True Corporation PLC (TRUE) and the ratings of TRUE’s current 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 Bt7,000 million in senior secured debentures. The outlook remains “stable”. The entire proceeds from the proposed debentures will be used to early redeem selected tranches of existing debts in order to better realign maturing debts with cash flows for the next three years. The ratings reflect TRUE’s leading position as the integrated telecommunications company in Thailand; competent management team; and growth prospects of broadband Internet, wireless technology, and pay-TV segment. These strengths are constrained by the company’s weak financial profile due to high leverage, fierce competition in core business segments, uncertainty of the telecommunications regulatory developments, and exposure to refinancing risk.
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 expects that TRUE will continue to explore and execute debt restructuring schemes in order to realign its debt service obligations with cash flows. The ratings could be downgraded if the company fails to demonstrate a constructive progress within the next 12 months in resolving covenant concerns and restructuring the debt repayment schedule, or if it pursues major investments that require a substantial debt financing.
TRIS Rating reported that TRUE is Thailand’s leading integrated telecommunications service provider. The company’s three main businesses are TrueOnline, TrueMove and TrueVisions, which in 2008 contributed 40%, 42% and 18% in terms of revenue; and 55%, 31% and 14% in terms of EBITDA (earnings before interest, tax, depreciation and amortization), respectively. The company’s strong business profile is underscored by its strong position in broadband Internet market in Greater Bangkok, with an estimated market share of 70%. TRUE is highly capable of maintaining its market share in this segment given its edges in fixed-line network coverage. Robust prospects of broadband Internet and rapid pace of subscriber growth should be able to fully offset declining fixed-line revenue in the next few years. In addition, TRUE is the largest pay-TV operator and the third largest mobile-phone operator in Thailand with subscriber market shares of 50% and 24% nationwide, respectively. The under-penetrated pay-TV industry and wireless non-voice services are two crucial areas that will continue to support TRUE’s business viability and its credit profile over the medium term.
TRIS Rating said, like all other telecom operators, TRUE is facing challenges from an intense competition, particularly in the mobile-phone sector where market is highly dynamic and subscribers are price sensitive. Fixed-line and mobile voice-services are already in their maturing stages where tariffs are falling at a faster pace than subscriber growth, resulting in flat or declining revenues. The mobile sector is also weighed by uncertainty in regulatory developments. The upcoming auction of 3G licenses pose a significant upside for mobile operators in terms of lower regulatory cost, although in case of TRUE, the extent of such benefits could be offset by limited financial flexibility to undertake substantial network investments.
TRUE’s financial profile is characterized as high leverage and exposure to refinancing risk, balanced with relatively stable margin and cash flow generation. Performance in the first quarter of 2009 showed a sign of improvement compared with the under-performed results in 2008, which were impacted by falling minute usage and large interconnection charge (IC) payments in the mobile sector. Revenue for the first quarter of 2009 was Bt15,568 million, a 2.3% drop from the same period last year due to weak economy. Operating margin was 36.0%, up from 32.9% in 2008 and 33.2% in 2007. Total debt-to-capitalization ratio improved slightly from 92.6% in 2008 to 86.6% in March 2009, thanks to the Bt6.38-billion capital injection, mostly from Charoen Pokphand Group Co., Ltd. (CP), via rights offering in February 2009. The rights offering also allowed TRUE to inject Bt2.6 billion into the equity of its wholly-owned subsidiary, True Move Co., Ltd. (TrueMove), to shore up its balance sheet and covenant ratios. For the first quarter of 2009, the funds from operations (FFO) to total debt ratio was relatively stable at 5.1% (non-annualized).
Weak economic outlook should continue to pressure TRUE’s performance for the remainder of 2009, though fundamental wise, the company’s diversified telecom services should act as a moderate cushion against economic downturn. Refinancing risk remains a key concern for the medium term in view of insufficient FFO to repay debts and fund capital expenditures, particularly for the 3G network. TrueMove continues to face potential covenant breaches in coming quarters, but management has been highly committed to solve this issue in a timely manner. TRUE’s relatively stable and predictable cash flows, together with a strong support from CP, remain crucial factors underpinning its ratings, said TRIS Rating.
While the credit ratings of the TRUE107A, TRUE117A, TRUE127A, TRUE144A 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 TRUE144A: Bt6,183 million senior secured debentures due 2014 Affirmed at BBB Up to Bt7,000 million senior secured debentures due within 2014 BBB Rating Outlook: Stable
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