March 07, 2014 00:00 By Usanee Mongkolporn
Firm hopes for operating profit in 2014, but gets downgrade from Moody's
True Corp expects to greet a strategic partner in the second half of this year, but that company might not necessarily be in the telecommunications industry.
Many foreign companies in the telecom and non-telecom industries have approached True. The strategic partner could be any company that could create synergy with True’s businesses, chief executive officer Suphachai Chearavanont said yesterday during a press briefing on the group’s business direction this year.
True limits its strategic partner’s stake at 25 per cent.
This year will be a good year for the group, which will try its best to generate an operating profit, he said.
True posted a net loss of Bt9.1 billion last year after recognising a Bt2.1-billion impairment loss from transferred assets, a Bt6.3-billion gain from selling infrastructure assets and rights to receive revenue from infrastructure assets to the True Telecommunications Growth Infrastructure Fund (TRUEGIF), and a Bt858-million gain from selling non-core subsidiaries.
Its consolidated service revenue grew 7.2 per cent to Bt66.3 billion.
True targets consolidated revenue growth of 8-9 per cent this year.
Its mobile group aims to acquire 2 million subscribers this year on top of the present 24 million, its broadband Internet business to acquire 440,000 subscribers in addition to the present 1.8 million, and its pay-TV business TrueVisions to acquire 400,000-500,000 subscribers from the present 2.4 million.
True has set this year’s group capital expenditure budget at Bt26.5 billion, of which Bt15.5 billion will be for True mobile, Bt10 billion for TrueOnline and Bt1 billion for TrueVisions.
True’s new digital TV variety channel will spend Bt400 million to Bt500 million on business development this year. The True4You channel will tap younger viewers.
True in December won the bidding for two terrestrial digital TV channel licences, both in standard definition. One is for variety and the other for news.
Moody’s Investors Service has downgraded to “Caa1” from “B3” the corporate family rating of True and the corporate family and senior unsecured bond ratings of its consolidated subsidiary TrueMove. The outlook for all ratings is “negative”.
“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,” said Yoshio Takahashi, an analyst with the ratings company.
True established TRUEGIF last December and sold its existing and future telecom-tower assets to the fund to reduce debt. However, sales proceeds amounted to Bt39 billion, which was at the lower end of the company’s plan to raise Bt40 billion to Bt66 billion.
Part of the proceeds or Bt16 billion was an advance payment for the construction of 6,000 telecommunication towers, which True will have to deliver over two years.
While its total debt declined to Bt90 billion at end-December from Bt113 billion at end-September, its debt level is likely to increase to over Bt100 billion by the end of this year, given its ongoing negative free cash flow (FCF).
Moody’s expects that True Corp’s negative FCF will total about Bt20 billion this year, because of its weak earnings from its mobile business, its ongoing large investments in third- and fourth-generation cellular services and the potential for additional spectrum fee payments, after the upcoming 1.8-gigahertz auction.
Its short-term debt – including rated notes amounting to US$10.7 million due on August 1 – totalled Bt14 billion, while its cash holdings as of end-December totalled Bt15 billion.
True will likely continue to depend on borrowings from domestic banks, including drawdowns from unused committed bank lines, and funding from the local currency bond market to address its financing gap.
True Corp’s adjusted debt-to-EBITDA (earnings before interest, taxes, depreciation and amortisation) is expected to increase to 6.5-7.0 times this year, although the ratio declined to below 5.0 last year, largely because of its reduction of debt in the fourth quarter. Since True plans to lease the disposed assets from its infrastructure fund, its adjusted leverage this year will rise. Moody’s will make operating lease adjustments to estimate True’s adjusted debt levels.
Given the expected debt increase, True will likely require covenant waivers when covenant tests on its bank facilities commence in September.
Its equity can turn negative this year if timely recapitalisation does not occur. Its reported shareholders’ equity decreased to about Bt4.7 billion as of end-December, from Bt5.6 billion as of end-September, despite Bt6 billion in gains from the sale of assets to TRUEGIF. It incurred a net loss of Bt9 billion in 2013 and Bt7 billion in 2012.
While Thai banks and its major shareholder, Charoen Pokphand Group, have been supportive, True Corp’s weak operating and financial profile has led to uncertainty as to whether such solid support will continue, Moody’s said.