Tris Rating has affirmed the company rating on True Move H Universal Communication Co (TUC) and the rating on TUC's senior unsecured debentures at BBB+.
The ratings reflect TUC's status as a core business unit of True Corporation. They also take into consideration TUC's sound competitive position in the mobile services industry, but they are constrained by its high leverage and intense competition in the sector, which may slow TUC's ability to monetise its hefty investment in spectrum portfolio, network capacity and coverage.
TUC contributed 73% of True's revenue in 2018.
True and TUC operations are fully integrated. During 2011-14, True provided capital injections to TUC worth about 85 billion baht. In June 2016, True added a further 60 billion baht to TUC to support the acquisitions of the 1.8-gigahertz and 900-megahertz spectrum licences.
TUC's business strength is supported by utilisation of the True brand, under which TUC offers mobile services as TrueMove.
True stores and outlets bundle all of True's services, including TrueOnline and TrueVisions. The support from True enhances TUC's competitive position and is considered a positive factor in its ratings. As a result, TUC's credit quality is closely tied with True's credit profile.
TUC's business position has improved steadily the past few years as a result of extensive investments in spectrum portfolio, network capacity and coverage, as well as active marketing campaigns. The investment led to a jump in market share.
In November 2018, the company settled several disputes with CAT Telecom Plc. According to TUC's financial reports, the company agreed to transfer disputed cell towers to CAT and pay it 15.7 billion baht. In exchange, TUC has the right to use the towers for 30 years. TUC incurred an additional charge of 1.1 billion baht related to the transaction.
The settlement removes litigation risks on several disputes between the company and CAT totalling 75 billion baht. But several legal uncertainties, such as access charges or excise tax issues, continue to persist and will take time for resolution. The ratings could be under downward pressure if the legal outcomes significantly affect TUC's financial profile.
On April 11, 2019 the National Council for Peace and Order announced an extension of 900MHz spectrum licence payment terms for mobile operators on the condition that operators participate in 700MHz spectrum allocation. Tris's base case assumes that True will accept the payment extension terms and buy a 700MHz licence.
Tris expects the new payment scheme to help ease concerns over cash flow strain, especially in 2020. The 700MHz licence, however, adds to True's debt burden and weakens its leverage profile.
Tris assumes that the cost for the 700MHz licence will be 25 billion baht for 15MHz. Payment terms are split into 10 equal instalments starting from the end of 2020. As Tris treats the licence payment obligation as debt, the 25 billion baht will be added to True's obligations once it receives the licence, expected in mid-2019.