TRIS Rating Co., Ltd. has assigned the company rating of Thaicom PLC (THCOM) at “BBB+”. At the same time, TRIS Rating has also assigned the rating of “BBB+” to THCOM’s proposed issue of up to Bt7,000 million in senior debentures. The outlook is “stable”. The ratings reflect cash flow stability in the conventional satellite segment, strong performance and the business value of the telecom investment portfolio, solid broadband satellite results in the domestic and Australian markets, and the benefits from strong group support. The ratings are partially offset by intense competition in overseas markets, high operating and regulatory risks inherent in satellite industry, and uncertainty of broadband satellite’s success in key foreign markets.
The “stable” outlook reflects the expectation that THCOM will retain its market strengths and continue to generate stable cash flows from conventional satellite services and telecom businesses in Cambodia and Laos. The role of IPSTAR in the Asia-Pacific region should gradually become more prominent in the next 1-2 years. The ratings could be negatively impacted should IPSTAR take longer than expected to secure market positions in China.
TRIS Rating reported that THCOM, formerly named Shin Satellite PLC (SATTEL), operates three geosynchronous satellites, two of which are conventional and another is a broadband satellite (named IPSTAR). In 2008, total revenue was Bt7,013 million. Conventional satellites attributed for a third of total revenue. IPSTAR accounted for another one-third, while telecom business represented about 28%. Customer bases are primarily located in Thailand and the Asia-Pacific region. A strong business profile is underpinned by the leading position as a satellite services provider in Thailand. The competitiveness is secured by high barriers to entry and capital requirements. Backlog of conventional satellites as of June 2009 stood at US$224 million, or an equivalent of conventional satellite revenue for four years. TRIS Rating expects THCOM to continue to enjoy a favourable market position in the domestic and nearby markets, which should lead to a stable cash flow in the medium term. The ratings factor in the expectation that Shin Corporation PLC (SHIN), THCOM’s major shareholder of 41%, will continue to provide the necessary strategic support so as to help enhance the company’s overall business profile and financial flexibility. THCOM’s business risk profile is also enhanced by a strong operating performance of telecom businesses in Cambodia and Laos. We expect such growth momentum to continue, leading to stable cash flows in the medium term.
TRIS Rating said, the ratings of THCOM are weighed by IPSTAR’s underperformance. The success of IPSTAR has so far been derived from Australia and Thailand. The ratings take into consideration the progress THCOM has achieved in the Indian market. The company has reached agreements with an Indian mobile operator and the Indian States Space Agency to utilize IPSTAR’s capacity for the purpose of mobile backhaul and the agreements should become effective from the fourth quarter of 2009. The ratings are constrained by an uncertainty with regard to the extent and timing of revenue generations in the Chinese market. Further evidence is required to prove the competitiveness of IPSTAR in the China’s telecom market, which to a large extent depends on management’s ability to offer attractive solution packages for a strategic partner.
The financial profile of THCOM is characterized as margins under pressure, stable cash flows, moderate leverage, and acceptable liquidity. The margins have been negatively impacted by IPSTAR and ranged 34%-38% for the past two years. The margins are expected to improve once the businesses in China and India begin to materialize. TRIS Rating views THCOM as a group as capable of servicing maturing debts and managing compliance in covenants. TRIS Rating assumes that the company will refinance all existing US$ term loans and the new debt repayment schedule will be better aligned with future cash flows. -- End
Company Rating: BBB+ Issue Rating: Up to Bt7,000 million senior debentures due within 2014 BBB+ Rating Outlook: Stable
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