RATINGS RATIONALE
The change in outlook follows True Move's announcement that 98% of holders of its notes due in 2013 and 95% of holders of its notes due in2014 have tendered their holdings, and provided consent to the proposed amendments to both bond indentures under the terms of the company's offer to purchase and consent solicitation.
Moody's earlier commented on the positive implications of the tender offer on 15 September 2011, and noted that the rating outlook would revert to stable if a substantial majority of the notes were tendered.
The consents received are sufficient to effect all proposed amendments to the indentures, including to substantially eliminate all restrictive covenants, certain events of default and related provisions contained in the indentures governing the notes, and shorten the notice period for redemption of the notes.
True Move is refinancing the tendered notes through partial proceeds of a 10-year Bt48.9 billion secured bank facility signed with Krung Thai Bank and Siam Commercial Bank. We expect the bank facility to have amortizing repayment terms, with some grace period.
The stable outlook reflects the significant decline in refinancing risks on the bonds, especially in light of True Move's concession expiring in 2013. The bond refinancing exercise has also lengthened the debt maturity profile on True Move's and True Corp's debt, and eliminated potential foreign exchange volatility by better aligning the domestic currency denominated bank facility with the domestic currency revenue stream.
True Move's liquidity profile has also improved following an equity injection of Bt4 billion from its parent and repayment of outstanding amounts under its facilities from IFC and KfW in Q2 2011, which eliminates the need for continuous covenant waivers.
Furthermore, surplus amounts under the Bt48.9 billion new bank facility, after utilizing Bt27 billion for the buyback of bonds and Bt6.3 billion for refinancing a bridge facility for the Hutch acquisition, would leave True's wireless group with adequate resources for investments in its 3G business, network expansion, and potential bidding for new spectrum licenses when announced by Thailand's telecoms regulator.
Moody's is cognizant that the new debt facility and future 3G investments will result in increased leverage over the near-term on a consolidated basis for the True Group, but note that this can be accommodated in the current stable outlook given the improved debt maturity profile, improved liquidity position and committed funds for capex.
The current B2 ratings encapsulate True Move and True Corp's exposure toan uncertain and politicized regulatory environment for telecom playersin Thailand, which has had an overhang effect on the rating. Moody'sremains concerned about execution risks for the HSPA 3G upgrade and the
migration of subscribers from the CDMA network to the new HSPA platform.
However, the proposed changes under the consent solicitation have no effect on existing guarantees, and the company's obligations under theremaining notes and indentures will remain guaranteed by the parentguarantor and subsidiary guarantors. As such, there is no subordination
risk for any remaining notes that do not get tendered by the expiry ofthe offer on 4 October 2011.
True Move's credit profile is highly correlated with True Corp's, giventheir strong financial and operating links, and as such their ratings areequalized. Given True Move's relative importance to the consolidatedgroup, contributing 49% of the consolidated revenue, Moody's expectssupport from True Corp to remain forthcoming.
The principal methodology used in this rating was GlobalTelecommunications Industry, published in December 2010. Please see theCredit Policy page on www.moodys.com for a copy of these methodologies.
Headquartered in Bangkok, True Corp is an integrated provider offixed-line, broadband, internet, and mobile services, and pay TV. TrueCorp is listed on the Thai Stock Exchange; the Charoen Pokphand Group (CPGroup) is the major shareholder (64.74%). Its wireless business isconducted predominantly through its 97.1%-owned subsidiary, True Move,Thailand's third largest mobile telecommunications operator.