Telecommunications
firms turned the corner both in terms of debt restructuring
and provision of services
Recovery is back on line
Vivat Prateepchaikul
The Thai telecom industry showed
signs of slight recovery in the second half of 1999 with improved
operating revenues, despite the burden of hefty foreign exchange
losses, and some progress toward debt restructuring.
The 10 major telecommunications companies, all listed on the
Stock Exchange of Thailand, reported third-quarter combined losses
of 17.48 billion baht against earnings of 5.47 billion baht a
year earlier.
Advanced Info Service (AIS), operator of the GSM and NMT 900
mobile phone systems, reported net gains of 884 million, mostly
from the pick up of mobile phone sales in the second half.
In the third quarter alone, AIS had 80,000 new subscribers making
it the leading mobile phone operator with an almost 50% share
of the 2.3 million subscribers market.
At the end of 1999, AIS had about 1.2 million subscribers, with
360,000 new subscribers, up from 200,000 new subscribers in 1998.
Earlier
AIS predicted it would sell 160,000-170,000 handsets for its digital
GSM system, and about 100,000 handsets for the analogue NMT 900
system.
Shin Corporations Gcorrect registered net profit of 820 million
baht in the third quarter, an increase by 23%, compared with 668.11
million baht in the same period last year.
But its arch rival United Communication Industry Plc reported
losses of 6.71 billion baht in the third quarter against 1.76
billion baht net profit in the same period last year.
Ucom's subsidiary Total Access Communication, operator of Worldphone
1800 and Worldphone 800 mobile phone systems, posted third-quarter
losses of 3.54 billion baht against 3.94 billion baht net profit
for the same period in 1998.
But TAC recorded a 19.3 % increase in operating income year-on-year.
The surge in operating income is a result of rising revenues in
its core mobile phone business, to 4.69 billion baht at the end
of the third quarter, up from 3.752 billion baht.
However, TAC was hard hit by unrealised foreign exchange losses
of 4.06 billion baht for the third quarter.
Metropolitan fixed-line carrier, TelecomAsia Corporation Plc,
posted the highest net losses of 6.79 billion baht in the third
quarter, against 1.76 billion baht net profit in the same period
last year.
This was caused mainly due to losses from baht depreciation.
But the company's earnings from the fixed-line operation rose
to 795 million baht from 713 million baht because it successfully
reduced operating costs.
The commercial launch of the personal communication telephone
by TelecomAsia was a hit.
Meanwhile, the debt-ridden provincial fixed-line-carrier, Thai
Telephone and Telecommunication Plc, recorded third-quarter net
losses of 2.43 billion baht, against 410.07 million baht net profit
in the corresponding period last year.
Of that total loss, 1.86 billion baht was a result of foreign
exchange losses.
But TT&T's overall operating performance improved with total
revenues increasing from 1.42 billion baht in the third quarter
of 1998 to 1.52 billion baht in the third quarter of 1999, following
improvements in its fixed-line service earnings.
The company attributed better operating results to a decline
in operational costs, from 2.3 billion baht to 2.08 billion baht.
In contrast, state telecom firms reported losses from operations
in the past nine months.
The Telephone Organisation of Thailand (TOT) reported a huge
drop in revenue this fiscal year, due mainly to foreign exchange
losses and a decline in demand for telephone services.
The TOT said its net profit plunged by more than 80%, to 2.08
billion baht from 16.5 billion baht last year.
TOT president Thongchai Yong-charoen said that the state agency
made provision for a foreign exchange loss of seven billion baht
this year, prompting the huge drop in its net profit.
The decline was also attributed to a decrease in telephone service
demand, due mainly to the popularity of mobile phones and the
commercial launch of the personal communication telephone (PCT)
by TelecomAsia.
Mr Thongchai said the TOT has been trying to slash operating
costs but foreign exchange losses still weigh heavily on the company's
balance sheet.
Analysts say TOT has reason to be discouraged by its dismal financial
results since it needs to go ahead with privatisation to prepare
itself for the intense competition expected when the telecom market
is fully liberalised in 2006.
Most state enterprises too, have reported a drop in their revenues.
The National Economic and Social Development Board (NESDB) reported
that the performance of state enterprises in fiscal year 1999
was marked by a lack of profitability and missed investment targets
due to their own inefficiencies and a weak economy.
The consolidated accounts of the state enterprises showed a plunge
in profit of 55% and their investments fell 9% below target.
The shortfall prompted TOT to start collecting fees for its eight
special phone services (SPCs), beginning next year, to bolster
its falling revenues.
The TOT explained that the move was necessary as it needed more
funds to finance the operation and development of the SPC project,
which required a great deal of investment.
The company said that from January, 2000, the monthly fee for
a single service will be 30 baht per line, three services will
be 80 baht per line, and a further 25 baht will be imposed for
every additional service per line.
By charging customers for the services, TOT expects to gain an
additional 12 million baht per month.
Currently, fixed-line companies earn an average of 650 baht to
750 baht from each line per month.
But provincial fixed-line operator Thai Telephone and Telecommunication
Plc (TT&T) said its subscribers who use the special services
will not be charged until April 2000.
Meanwhile, the long-delayed eight-billion baht synchronous digital
hierarchy (SDH) project made progress when the TOT's board of
directors approved a proposal to reopen bidding.
The project is a crucial part of TOT's plan to increase its domestic
telephone network capacity to six million lines and to introduce
new services using high-speed technology.
But since the SDH was proposed three years ago, the technology
has advanced and it is now called the Transmission and Network
Expansion (TNEP) project.
The TNEP project is a vital element to the success of the TOT,
which wants to introduce high-speed technology to its local telephone
network.
SDH bidding was first opened in 1996 but was postponed after
rumours circulated of widespread collusion among the bidders.
Under the new bidding arrangements, with revised criteria, international
companies are allowed to join in the bidding process, regardless
of whether or not they have sub-contractors or joint-venture companies
in Thailand.
There are several companies bidding for the consultancy tenders
including the German consultancy Detecon Deutsche Telepost, Norconsult
Telemetics Ltd, Telia Swedtel and Tele Denmark Consultant A/S.
The winning bid will formulate the specification details for
the project, review terms of reference, supervise project progress,
design technical specifications, and select potential investors.
Bargain hunters flocked to shopping malls
in November to buy PCT handsets
To ensure transparency, the qualifications of the consultant
will also be vetted by the World Bank and the National Electronics
and Computer Technology Centre.
The consultant would spend at least two months on designing the
specification before inviting bids from suppliers. The process
would take eight months.
''If nothing goes wrong, the SDH project will be launched within
the next two years,'' said TOT vice-president Preecha Raksachart.
Under the new bidding terms of reference, the winning foreign
bid will have to purchase locally-manufactured products worth
at least 50% of the successful bidding price, as part of a counter
trade agreement.
The conditions were included to support the local industry and
promote the export sector.
The TOT is confident that it will achieve its objective of receiving
a bid of around 8 billion baht, a projection lower than the 10
billion baht proposed in the first bid, in order to prevent criticism
of overspending.
The board also endorsed a recommendation that the TOT separate
the bidding procedure into two parts; the fibre-optic supply process
and the transmission network supply process.
Each process is searching for just one winning bid to prevent
repeat accusations of collusion among the bidders.
The original round of bidding saw TOT divide the project into
six zones, which it was forced to change after the rumours of
collusion began.
But the second half of 1999 also saw some major telecom firms
make progress in their debt-restructuring talks.
Debt-ridden TelecomAsia Corporation Plc (TA), the metropolitan
fixed-line operator, signed a memorandum with 45 local and foreign
creditors over its 63.11 billion baht debt-restructuring plan,
scheduled for completion by the end of 1999.
Details of the plan have not yet been finalised but the company
was anxious to sign the memorandum as it had committed itself
to make progress on the restructuring by the end of September
1999.
The debt-restructuring framework approved by the creditors include
payment rescheduling and the issue of convertible preference shares.
But the creditors were only willing to write off less than 2%
of the group's debt.
The group's outstanding debt of 49.56 billion, which was in the
form of secured loans, will be rescheduled within a grace period
of two years.
The secured loans will be repaid in instalments from the second
quarter of 2002. The last payment will be made before the end
of 2008. Interest will be limited to the London Interbank Offered
Rate.
The remaining 13.46 billion baht of unsecured loans will be settled
through a combination of debt forgiveness, an immediate cash repayment
of about 5.61 billion baht and the issue of promissory notes worth
6.71 billion baht.
Supachai Chearavanont, TelecomAsia's chief executive and president,
said the group would have to finalise details of the plan before
the end of 1999.
As part of the package, German export bank Kreditanstalt fur
Wiederaufbau, which is the group's largest creditor, will inject
fresh funds of US$150 million by taking up 702 million convertible
preference shares.
The injection will lift the German bank's stake in TelecomAsia
to 24% of its paid-up capital.
The capital injection will dilute the stakes of the Charoen Pokphand
group and its affiliates, which currently hold 37% and Bell Atlantic,c
which holds 18% through Nynex Network System (Thailand) Co. TelecomAsia
will use the extra funds to repay debt to its unsecured creditors.
In addition, the German bank has agreed to give all existing
shareholders the option to buy back the shares after three years
at a price to be determined at a later date.
The restructuring plan will enable TA to attain cashflow and
meet debt service obligations in the foreseeable future as well
as maintain the company's position in the telecom industry.
But provincial fixed line operator Thai Telephone and Telecommunication
Plc (TT&T) was slow in its debt-restructuring talks and still
could not meet the year-end deadline for debt rescheduling set
by the central bank's debt advisory committee -- the Corporate
Debt Restructuring Advisory Committee (CDARC).
It is the only listed telecom company that has not been able
to secure a debt-restructuring agreement with its creditors under
the supervision of the committee.
TA, TT&T and Jasmine International Plc sought supervision
from the advisory committee to hasten their debt-restructuring
procedures.
The central bank set up the debt advisory committee as a state-run
mediator to help corporations handle the debt problems that emerged
during the economic crisis.
Most indebted businesses prefer the advisory committee over the
bankruptcy court and lawsuits from lenders.
The committee set a deadline for the ailing telecom company to
complete a debt-restructuring deal by the end of September, or
its case will be sent to the court for a time-consuming rehabilitation
procedure.
With the deadline closing in, TT&T and its creditors turned
to the debt-rescheduling compromise.
Negotiations between TT&T and its lenders have been delayed
since neither could agree to the other's demands.
While TT&T wanted its lenders to give in to a compromise
deal and allow the company to covert debt to equity, its lenders
said that TT&T must accept the pain itself by diluting the
ownership of its shareholders.
TT&T will ask for a certain period of debt-rescheduling from
the lenders which will allow the company to meet the deadline.
''We need time to take a breath. It is better than entering court
procedures. TT&T thinks that we and the lenders can fine-tune
our ideas on the debt-burden solution,'' said TT&T president
Thongchat Hongladarom.
Mr Thongchat admitted that the factors discouraging the lenders
from granting the company a new debt term is high revenue-sharing
of 43.1% with the TOT, which made the firm's income projections
fall below the original target.
But a local bank said other deterrents for TT&T included
the drop in earnings as a result of the unfair tariff structure
between the fixed-line and mobile phone business.
Meanwhile TT&T's holding firm, Jasmine International, expected
to secure terms on its $60 million debt restructuring plan by
the end of this year.
Its subsidiary, Jasmine International Overseas, concluded a separate
$80 million agreement with its lenders.
Two major creditors of Jasmine are Bangkok Bank and Chase Manhattan
Bank.
The second half also saw Shin Corporations Plc approach TT&T
with terms of a takeover, following a suggestion by TT&T's
lenders who floated the idea as one option. But TT&T declined
the overture.
Samart Corporation Plc, a debt-ridden telecom firm, reached agreement
in October with most of its creditors to roll over the 7.2-billion-baht
debt burden as a major part of a debt-restructuring plan.
Most creditors passed a resolution to grant an extension of debt
payments to the company for seven years for the roll-over.
Samart Corp is one of the cash-strapped telecom firms now making
a breakthrough in a long, drawn-out debt restructuring plan.
Total Access Communication Plc (TAC) was also granted a six-year
extension on the maturity of loans, worth $537.7 million, by its
creditors.
TAC's creditors also agreed to extend the repayment of short-term
loans until November 2004. The rolled-over loans account for 54%
of the company's outstanding loans of $1.18 billion.
TAC's parent firm, United Communication Industry Plc (Ucom),
also passed the most critical stage of its struggle for survival
by clearing $573 million in debt.
Ucom's total debt consists of the equivalent of $208 million
in bank facilities, $264 million in euro-convertible bonds and
3.6 billion baht in baht debentures.
The euro bonds and baht debentures will be converted into equity
of $120 million, according to the debt restructuring agreement.
Earlier
AIS predicted it would sell 160,000-170,000 handsets for its digital
GSM system, and about 100,000 handsets for the analogue NMT 900
system.
