TRIS Rating Affirms Company Senior Unsecured Debt Ratings of TRUE at BBB+ and Assigns A- Rating to Senior Partially Guaranteed Debt Worth Up to Bt7,480 Million, with Stable Outlook

Stocks and Financial Services Press Releases Monday October 12, 2015 11:49
Bangkok--12 Oct--TRIS Rating

TRIS Rating has affirmed the company rating and the ratings of the existing senior unsecured debentures of True Corporation PLC (TRUE) at "BBB+". At the same time, TRIS Rating has assigned the rating of "A-" to TRUE's proposed issue of up to Bt7,480 million in senior partially guaranteed debentures. The outlook remains "stable". The proposed debentures are partially guaranteed by KASIKORNBANK PLC (KBANK). Under the terms and conditions of the partial guarantee, KBANK guarantees to be responsible for 45% of the total amount due or up to Bt3,366 million, whichever is lower. The proceeds from the proposed debenture issue will be used to refinance the debentures coming due in November 2015.

TRUE's credit ratings reflect the company's leading position as an integrated telecom operator with established market positions in fixed-line broadband Internet and mobile services and expected continuing supports from its major shareholders. These strengths are partially offset by intense competition in core businesses and the large investments required in the online and mobile segments.

The "stable" outlook reflects the expectation that TRUE will sustain its strong market positions in its key segments. TRUE's ratings could be upgraded if its operating cash flow improves considerably without weakening its financial position. However, the ratings could be downgraded should its performance deteriorate and weaken its capital structure. The debt to capitalization ratio is not expected to exceed 65% for an extended period.

TRUE was incorporated in 1990. The company is engaged in three business segments: "TrueOnline", providing broadband Internet nationwide and fixed-line phone in the Bangkok Metropolitan Area (BMA); "True Mobile", providing mobile services; and "TrueVisions", offering pay television (TV) services and two digital TV channels. For the first half of 2015, TRUE's revenue stood at Bt57.1 billion. The revenue contributions from the three lines of business were 24%, 68%, and 8%, and EBITDA contributions (earnings before interest, taxes, depreciation, and amortization) were 55%, 39%, and 6%, respectively.

TRUE's strong business profile is underpinned by its position as a leading integrated telecom provider. TrueOnline held a 41% of revenue shares in broadband Internet nationwide. TrueVisions is the leading pay-TV operator offering a wide range of international and local content. As of June 2015, TrueVisions had about 2.7 million subscribers on its network. True Mobile is the third rank mobile phone operator in Thailand, holding a 19% share of service revenue in the mobile industry. TRUE's credit ratings are partly strengthened by the support from two major shareholders. CP Group, one of Thailand's leading conglomerates, holds 51% of TRUE, followed by China Mobile International Holdings Ltd. (China Mobile) with an 18% ownership stake. China Mobile is the world largest mobile operator by number of subscribers.

TRUE reported revenue of Bt109.2 billion in 2014 and Bt57.1 billion for the first half of 2015. Excluding revenue from delivering towers to the Digital Telecommunications Infrastructure Fund (DIF) of approximately Bt6 billion in 2014 and Bt3 billion in the first half of 2015, TRUE's revenue grew by 7.3% y-o-y in 2014 and 9.5% year-on-year (y-o-y) for the first half of 2015. The growth was driven by broadband Internet and mobile segments. Its profitability has improved as the mobile segment benefited lower regulatory costs and completion of 2G network assets depreciation. The operating margin (operating income before depreciation and amortization as a percentage of revenue) improved from 16.7% in 2013 to 24.2% in the first half of 2015.

During 2015-2018, TRIS Rating expects TRUE's revenues to be in a range of Bt115-Bt129 billion per annum, or an annual growth rate of 2%-5%, driven by the broadband Internet and mobile's non-voice services. Operating margins are expected to improve somewhat, but the margin will stay under pressure because of heightened competition from the auctions of 900-megahertz (MHz) and 1800-MHz spectrum licenses scheduled in late 2015. The auction will allow rivals to roll out their 4G LTE (long term evolution) networks and reduce TRUE's competitive advantage as the first mover in 4G LTE. TRUE's funds from operations (FFO) are expected to stay in a range of Bt19-Bt25 billion per annum during 2015-2018.

The recapitalization in late 2014 largely supports TRUE's financial profile, both capital structure and financial flexibility. The debt to capitalization ratio decreased from 94% prior to the recapitalization to 55% after the recapitalization. Excluding the auctions for new spectrum licenses, TRUE plans capital expenditures of around Bt32 billion in 2015, including the cost of its 2100-MHz license. Capital expenditures are expected to be on average of Bt20 billion per annum during 2016-2018 as TRUE continues to roll out its 4G LTE network and expands its broadband network in the online segment. If TRUE wins a license in the upcoming 900-MHz or 1800-MHz spectrum license biddings, capital expenditures will be hiked in 2016, depending on the cost of license. TRUE needs new borrowings to fund its investments, which will lift the debt to capitalization ratio from 55% at the end of June 2015 to about 60%.

True Corporation PLC (TRUE)
Company Rating: BBB+
Issue Ratings:
TRUE15NA: Bt3,500 million senior unsecured debentures due 2015 BBB+
TRUE15NB: Bt4,000 million senior unsecured debentures due 2015 BBB+
TRUE16OA: Bt6,000 million senior unsecured debentures due 2016 BBB+
TRUE174A: Bt7,800 million senior unsecured debentures due 2017 BBB+
TRUE177A: Bt11,213 million senior unsecured debentures due 2017 BBB+
TRUE183A: Bt4,000 million senior unsecured debentures due 2018 BBB+
Up to Bt7,480 million senior partially guaranteed debentures due within 2022 A-
Rating Outlook: Stable

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