Moody's changes True Corp and True Move's outlook to negative

 

The rating is affirmed at "B2". The rating agency suggested urgent recapitalisation to bring down the debt level. 

"The change in outlook reflects True Corp's deteriorating financial profile resulting from the need to invest in its 3G networks and services, and competitive headwinds in the Thai cellular industry as all three cellular operators launch 3G services under the new 2.1GHz licenses this year," said Nidhi Dhruv, an analyst and also lead analyst for True Corp and True Move. 

True Corp's adjusted debt/EBITDA increased to 6.1 times for the year ended December 2012, although it improved slightly to 5.7 times in March 2013, it remains high for the rating level. At the same time, True Corp's EBITDA margins have deteriorated to 19.7% from 27% in 2011 as a result of high selling expenses and customer acquisition costs.

Over the next 12-18 months, there will be increased competition from the two other Thai operators - AIS and DTAC - both of which have stronger financial profiles, forcing True Corp to front-load its capex in order to strengthen its 3G coverage and gain market share,  while maintaining advertising and customer acquisition costs at current high levels, Moody's said.

True Corp also has a strained liquidity profile over the next 12-18 months, and the company will require waivers when covenant tests on its bank facilities commence in September next year. 

  "In our view, recapitalisation is critical to de-lever True Corp, given its weak balance sheet and the ongoing need to invest in the business. Without recapitalisation, we expect True Corp's adjusted leverage to remain higher than our tolerance of 5.5-6.0 times for the current B2 rating over the next two to three years."