Hong Kong, March 06, 2014 -- Moody's Investors Service has downgraded to Caa1 from B3, the corporate
family rating of True Corporation Public Company Limited, as well
as the corporate family and senior unsecured bond ratings of its consolidated
subsidiary, True Move Company Limited.
The outlook for all ratings is negative.
The rating actions conclude the review for downgrade initiated by Moody's
on 29 November 2013.
RATINGS RATIONALE
"The rating actions reflect True Corp's vulnerable business and
financial profile, despite the company having lowered its debt levels
by selling assets to the infrastructure fund that it established in the
fourth quarter of 2013," says Yoshio Takahashi, a Moody's
Assistant Vice President and Analyst.
True Corp established the infrastructure fund -- the True
Growth Fund (TRUEGIF) -- in December 2013 and sold its existing
and future tower assets to TRUEGIF to reduce debt.
However, the net cash proceeds from the sales amounted to THB39
billion, which was at the lower end of the company's original
plan to raise between THB40-THB66 billion.
In addition, part of the proceeds (THB16 billion) was an advance
payment for the construction of 6,000 telecommunications towers,
which True Corp will have to deliver over the next two years.
True Corp currently holds approximately 33% of TRUEGIF which it
now accounts for as an associate.
While its total debt declined to THB90 billion at end-2013 from
THB113 billion at end-September 2013, True Corp's debt
level is likely to increase to over THB100 billion by end-2014,
given its ongoing negative free cash flow (FCF).
Moody's expects that True Corp's negative FCF in 2014 will
total approximately THB20 billion in 2014, due to: (1) the
company's weak earnings from its mobile business; (2) its ongoing
large investments in 3G and 4G services; as well as (3) the potential
for additional spectrum fee payments, following the 1.8 GHz
spectrum auction in 2014.
At the same time, its short-term debt -- which
includes rated notes amounting to USD10.7 million (THB353 million)
due on 1 August 2014 -- totaled THB14 billion, while
its cash holdings as of December 2013 totaled THB15 billion.
Thus, the company will likely continue to depend on borrowings from
domestic banks -- including drawdowns from unused committed
bank lines -- as well as funding from the local currency
bond markets to address its financing gap.
As a result, Moody's expects True Corp's adjusted debt/EBITDA
to increase to 6.5x-7.0x in 2014, although
the ratio declined to below 5.0x in 2013, due largely to
its reduction of debt in 4Q 2013.
Since True Corp plans to lease the disposed assets from its infrastructure
fund, its adjusted leverage in 2014 will rise, as Moody's
will make operating lease adjustments to estimate True Corp's adjusted
debt levels.
Given the expected debt increase, Moody's believes True Corp
will likely require covenant waivers when covenant tests on its bank facilities
commence in September 2014.
Moreover, its equity can become negative in 2014, if timely
recapitalization does not occur. Its reported shareholders' equity
decreased to about THB4.7 billion as of December 2013, from
THB5.6 billion as of September 2013, despite THB6 billion
in gains from the sale of assets to TRUEGIF. It incurred a net
loss of THB9 billion in 2013 and THB7 billion in 2012.
While Thai banks and its major shareholder, the Charoen Pokphand
Group (unrated), have been supportive of True Corp, Moody's
believes True Corp's weak operating and financial profile has led
to uncertainty as to whether or not such solid support will continue.
The negative outlook reflects Moody's view that without major restructuring
and recapitalization measures, True Corp's operating and financial
profile will remain vulnerable, given its prolonged negative FCF,
high leverage, potential covenant breaches, and weak equity
base.
Given the negative outlook, an upgrade of the company's ratings
is unlikely in the near term. However, the outlook could
revert to stable if it significantly improves its financial and liquidity
profile by: (1) improving its earnings and FCF; (2) reducing
its debt; (3) restoring its equity base; and (4) complying with
its financial covenants. Specific metrics Moody's will consider
include: adjusted debt/EBITDA below 6.0x-6.5x
on a sustained basis; and negative FCF below THB5-THB10 billion.
On the other hand, downward ratings pressure could emerge if the
company's negative FCF is unlikely to decline significantly,
thereby affecting its ability to obtain funding from domestic banks and
the bond markets, or if it is unable to obtain waivers for its financial
covenants.
Moody's notes that the standalone financial profile of True Corp's
consolidated subsidiary, True Move -- which provides
2G mobile services -- is weaker than that of True Corp.
Nevertheless, Moody's rates True Move at the same level as
True Corp, largely because True Move's bank debt and bonds
are guaranteed by True Corp's mobile subsidiaries that offer mainly
3G services.
In addition, given the strategic importance of the mobile business,
Moody's believes that True Corp will support True Move in times
of need.
The principal methodology used in these ratings was the Global Telecommunications
Industry published in December 2010. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
Headquartered in Bangkok, True Corp is an integrated provider of
fixed-line, broadband, mobile and pay TV services.
True Move, which is 99.4%-owned by True Corp,
is a mobile company providing 2G services.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Yoshio Takahashi
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's downgrades True Corp and True Move to Caa1; outlook negative
