True Corporation

True Corporation Plc (TRUE)

What’s new?
TRUE informed the SET that it has applied to the SEC for permission to establish an Infrastructure Fund. There aren’t yet many details, but the firm plans to sell rights to future revenues to the proposed fund. TRUE will subscribe for no more than one-third of the units in the fund.
According to its filing, telecoms assets worth not less than Bt70bn will be sold or leased to the fund: 1) 13,000 telecom towers, 9,000 links and 45,000km of core fiber-optic cable and 1.2m upcountry broadband network ports, 2) rights to rental revenue generated from 13,500 3G HSPA base stations and 3) leases for no more than 100 towers. The company and/or its subsidiaries will lease/sub-lease back assets from the fund for no more than 15 years for a transaction value not exceeding Bt55bn.
TRUE and/or subsidiaries will also sell investments in eight non-core businesses—True Leasing Co Ltd, Wire & Wireless Co Ltd, True Money Co Ltd, True Internet Data Center Co Ltd, True Lifestyle Retail Co Ltd, True Properties Co Ltd, True Digital Plus Co Ltd and True Digital Content and Media Co Ltd. The total value of the proposed sales is estimated at Bt21.7bn, according to the filing.
De-leveraging
There are some uncertainties—we doubt that TRUE will be allowed to sell all the 7,000 towers to the fund that True Move did not transfer to CAT (4,500 the towers are currently the subject of arbitration). But assuming that the SEC approves the application, TRUE’s capital structure would be substantially de-leveraged, as it could use the cash raised from the asset sales to pay down debts. As a result, its interest expenses would decline. Moreover, its 33% stake in the fund would provide dividend income and, possibly, capital gains (if the NAV goes up).
We assume that TRUE would use the Bt92bn in proceeds (Bt70bn from telecoms asset sales and Bt22bn from the sale of eight non-core businesses) to repay existing debts, but it would also need to borrow about Bt23bn in order to subscribe to a 33% stake the fund. We estimate about a Bt69bn net equity value increment, or Bt4.8/share. Its debt-to-equity ratio would decline from 8.4x at end-March to 2.7x, while interest expenses of Bt2.5-3bn per annum would be saved. We assume that the telecom asset lease-backs would be funded by operating cash over the next 15 years.
Based on anticipation of a lighter debt/equity ratio in the future, we have upgraded our rating from SELL to TRADING BUY. We will adjust our model on news that the SEC has approved the application and after TRUE has released more information.