True Corporation

True Corporation Plc (TRUE) 

 

What’s new?     

TRUE announced a Bt60bn capital increase via a rights offering (RO), with the planned maximum new-share issuance of 15,000m (at Bt4 par value). This will increase the total number of outstanding shares by 38% to 39,608m at maximum. The RO price will be determined on 31 Mar 2016 by applying a 10% discount to the 20-day average market price of TRUE, 3-30 Mar 2016. Two-thirds of RO proceeds will be used to repay its existing debts—Bt8bn in fixed-line debts and Bt32bn in mobile debts and the remainder as CAPEX disbursed for the 1800MHz and 900MHz licenses and other costs. 

It plans to settle the first 900MHz license payment in Feb 2016. The first phase of CAPEX for the 900MHz and 1800MHz networks is Bt33bn.This RO’s purposes are to strengthen its capital structure by de-leveraging its balance sheet over the next four years when it comes time to pay the large spectrum fee and to maintain its net debt-to-EBITDA ratio to below 2x and its investment grade rating perpetually. 

De-leveraged capital structure follows RO 

The RO comes sooner than we had previously expected (that is, during 2017-19). Assuming an RO price of Bt6/share, we estimate that new shares from the RO would be 10,000m (or a 29% share dilution impact), or the RO ratio of 2.46:1. As a result of the RO and the debt reduction, its interest-bearing debt to equity (D/E) ratio declines from 1.1x at YE16 to 0.3x, from 3.3x at YE19 to 1.6x and from 3.8x at YE21 to 1.7x, while its net debt to EBITDA ratio declines from 1.7x at YE16 to 0.03x, from 2.3x at YE19 to 1.5x and from 2.0x at YE21 to 1.4x. 

We estimate an annual interest expense saving of Bt2bn, assuming a Bt40bn debt reduction and a 5% average interest cost. We expect its net loss to be shallower by 21% for FY16 (to Bt4.13bn) and by 67% for FY17 (to Bt988m). Netting out the new share dilution impact with the debt reduction, our DCF-based target price falls 18% (to Bt3.30).      

RO to go ahead despite potential new 900MHz bidding

If JAS were to drop the 900MHz license and there were another new 900MHz auction for the first lot (a case that we believe is unlikely to occur and JAS would secure the debt funding before the 21 Mar deadline), management insists that it would continue to pay for its second lot of the 900MHz license that it won and the RO would go ahead as planned with the full support of the CP Group. If the first lot’s ending price were lower than the second lot’s, the NBTC would refund the balance to TRUE or TRUE would sue for damages. 

We think that it remains uncertain as to whether the NBTC will agree to that principal and refund the balance to TRUE. Despite the de-leveraged balance sheet as a result of the RO, our SELL rating stands, premised on its reversal into net losses for at least 5-7 years, the possible future rounds of capital increases and the absence of any dividend payment. We recommend switching to ADVANC and INTUCH, which still offer 6-7% dividend yields.