Tris affirms True ratings, downgrades outlook
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Tris Rating has affirmed the company and senior secured debenture ratings of True Corp at "BBB", as well as the ratings of True's existing senior debentures at "BBB-".
At the same time, the agency has affirmed the rating of “BBB-” to True’s proposed issue of up to Bt6 billion in senior debentures, which was announced on May 21.
Tris has also revised its outlook for True to “negative” from “stable”, reflecting the company’s weakened operating margins due to higher-than-expected network operating and subscriber acquisition costs in the mobile segment.
The revision also reflects heightened risks facing the mobile segment with regard to uncertain changes in cost structure owing to an expiring mobile concession and the company’s ability to turn around the segment’s operating performance over the next one to two years.
Since last year, True has invested heavily in setting up its third-generation network. Its subsidiary Real Move, which provides 3G service on 850 megahertz under the TrueMove H brand, had been able to acquire about 2 million subscribers by the end of June.
True’s service-revenue growth is expected to be in mid-single digits for the next three years, Tris said, adding that growth drivers are fixed-line broadband Internet and wireless non-voice services.
Its operating margin before depreciation and amortisation has dropped markedly since last year, but Tris expects the margin to improve from 2014. However, the agency sees the risks as rather material.
This is because TrueMove’s 2G concession under CAT Telecom is due to expire in September next year. It remains uncertain whether the costs for True to continue providing services on the 2G network after 2013 will be competitive.
In addition, it remains highly uncertain how fast True’s mobile segment could migrate TrueMove’s subscribers to a more cost-effective network, as well as scale down costs in the underutilised 2G network, according to Tris.
The rating firm expects True’s debt-to-capitalisation ratio to peak next year at about 85 per cent, as debt financing is still required mainly to support mobile and broadband-cable network expansions.
The company is expected to generate funds from operations in a range of Bt13 billion to Bt16 billion per annum between 2013 and 2015.
In the coming months, True may need additional debt financing for a 3G 2.1-gigahertz licence. Tris expects the company to raise new debts with an appropriate level of new equity injections, so as to prevent its capital structure and cash-flow protections from weakening further.
