Fitch Affirms BTS at 'A-(tha)'/Negative and Withdraws Ratings
23/04/2018 04:08
(The following statement was released by the rating agency) Fitch Ratings-Bangkok-April 22: Fitch Ratings (Thailand) Limited has affirmed the 'A-(tha)' National Long-Term Ratings on BTS Group Holdings Public Company Limited (BTS Group) and Bangkok Mass Transit System Public Company Limited (BTSC) with a Negative Outlook. Fitch has also affirmed BTSC's senior unsecured ratings at 'A-(tha)'. Simultaneously, Fitch has chosen to withdraw the ratings of BTS Group and BTSC and the ratings on BTSC's outstanding senior unsecured debentures for commercial reasons. Fitch will no longer provide ratings or analytical coverage of the companies. KEY RATING DRIVERS High Leverage, Lower Flexibility: The Negative Outlook reflects Fitch's expectation that BTS Group's FFO adjusted net leverage will remain high at 9x-11x during in the financial year ending March 2018 (FY18)-FY20, and fall to 6x in FY22. This is driven by high debt-funded mass-transit business investments - the electrical and mechanical system supply and installation project for the Green lines extensions (E&M project) - and equity injection in the new Pink and Yellow line projects. The company's deleveraging pace is also under question, with major cash inflows to support the deleveraging coming from the expected proceeds from the divestment of BTS Group's property business in FY18-FY19, a lump sum payment for the E&M project in FY21 and operational and maintenance (O&M) revenue from the planned mass transit lines. Any delay or weaker-than-Fitch-expected cash generation could prolong the pace over the medium term. Steady Operating Cash Flow: About 90%-95% of BTS Group's revenue will come from the cash generative and stable mass transit and out-of-home media businesses after the divestment of the property business. More than half of the group's media revenue was related to the BTS sky-train network, while the mass transit business stipulates pre-agreed revenue under O&M agreements for the extension of the BTS sky-train core network. BTS Group also receives stable dividends from its 33% holding in the BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF), which owns the net fare box revenue of the core network. Increasing Scale and Market Position: BTS Group has a strong business position in Bangkok's mass-transit sector. Its ridership market share as of end-2017 was 65%, according to the company. The group's expansion should strengthen its business profile by widening its operating network, increasing O&M revenue and boosting EBITDA. The company plans to expand its network coverage to 132 kilometres once the new lines are completed from the current 38 kilometres, while the extended Dark Green, Pink and Yellow lines will feed traffic from residential suburbs to the existing BTS sky-train system and enlarge its transit-media capacity. Fitch expects BTS Group's EBITDA from the transit business (including dividends from BTSGIF) to increase to about THB5 billion in FY22, from THB2 billion in FY17, due to the additional O&M fees of the new lines. BTSC is not the concessionaire for the Pink and Yellow lines, but it has been appointed as the O&M operator and will receive a pre-agreed O&M fee. BTS Group's and BTSC's Ratings Equalised: We rate BTS Group and BTSC on a consolidated basis, given the strong operating and strategic linkages between the parent and subsidiary as per Fitch's Parent and Subsidiary Rating Linkage criteria. DERIVATION SUMMARY The ratings of BTS Group and BTSC reflect the group's strong business profile as a leading mass transit and out-of-home media operator in Thailand, which is offset by a high financial-risk profile to fund large investments in the mass transit segment. BTS Group operates in a more stable transit business that generates stable operating cash flow and higher profitability than Tipco Asphalt Public Company Limited (A-(tha)/Stable), but these benefits are offset by a weakening financial profile, as the mass transit expansion requires large capex and has a long payback period. BTS Group's peers with predictable and stable earnings due to low competition, such as Bangkok Aviation Fuel Services Public Company Limited (A+(tha)/Negative) and Global Power Synergy Public Company Limited (A+(tha)/Stable), are rated at higher levels because they have lower financial risk profiles. KEY ASSUMPTIONS Fitch's Key Assumptions Within Our Rating Case for the Issuer -EBITDAR margin of 30%-35% for BTS Group and 38%-46% for BTSC over the next three years -Recognition of additional O&M fees to start in FY18 for the Green line extension and in FY22 for the Pink and Yellow lines -Net proceeds of THB7.0 billion from divestment of the property business in FY18 and FY19 -Capex of about THB17 billion for BTS Group and THB15 billion for BTSC over the next five years, excluding investments in E&M works for the Green line extension and the equity injection for the Pink and Yellow lines -Equity injection in the Pink and Yellow lines of THB21.6 billion in FY18-FY22 -Full payment receipt for the E&M project in FY21 -Lower dividend payments from FY18 as the special dividend was completed in FY17 RATING SENSITIVITIES No longer relevant as the ratings have been withdrawn. LIQUIDITY Sufficient Liquidity: BTS Group's liquidity was supported by a freely available cash balance and liquid investments (Fitch-adjusted) of THB21.4 billion at FYE17, which is enough to cover its debt maturing over the next 12 months of THB14.5 billion. We expect BTS Group's FCF to be negative in FY18-FY20, but this should be supported by its ability to access the local debt market, available and uncommitted bank credit facilities of about THB34.1 billion and other investments, mainly ready-for-sales equity, of THB13.8 billion (Fitch-adjusted) at FYE17. Contact: Primary Analyst Nichaya Seamanontaprinya Associate Director +66 2108 0161 Fitch Ratings (Thailand) Limited Level 17, Park Ventures, 57 Wireless Road Lumpini, Patumwan Bangkok 10330 Secondary Analyst Obboon Thirachit Director +66 2108 0159 Committee Chairperson Sajal Kishore Senior Director +61 2 8256 0321 Summary of Financial Statement Adjustments: - Readily available cash was adjusted to include treasury investments, the value of which was discounted based on Fitch's criteria. - Non-cash transactions related to train procurement were excluded from revenue and EBITDA, while the cash transactions were included in FFO (cash received) and capex (cash paid). - Non-cash transactions related to the E&M project were excluded from revenue and EBITDA, while the cash transactions were included in investments (acquisitions and divestitures). - Cash interest received for calculating financial ratios was adjusted to exclude the interest income from loans to related parties. 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