THAILAND: True to boost capital B20bn

Although True is the country's sole telecom operator with fixed-line, mobile, internet and cable-TV units, it has suffered heavy debt since 1997

Bangkok Post
Friday, November 7, 2008

By Srisamorn Phoosuphanusorn and Darana Chudasri

The local telecom conglomerate True Corp yesterday announced a 20-billion-baht capital increase aimed at reducing debt and raising funds for its push into third-generation mobile services.

The capital increase, which will be structured as a rights issue to existing shareholders, will also finance the buyback of a 23% stake in Bangkok Inter Teletech (Bitco) from the Charoen Pokphand Group, a major True shareholder. Bitco is a holding company controlling the mobile operator True Move.

Supachai Chearavanont, the True chief executive, acknowledged that the capital increase came amid horrific conditions in the global financial markets.

But he said the recapitalisation would ease investor concerns about the deteriorating domestic and global economy, and was also being made in anticipation of even tighter liquidity in the markets in 2009.

True will float 10 billion new shares to existing shareholders in a rights issue priced at 1.95 baht per share, a premium of nearly 15% from current market prices. Details on the offering, including the subscription ratio and timing, will be set later. Paid-up capital now is 45 billion baht, comprised of 38 billion in common stock and 6.9 billion in preferred shares.

Besides the rights issue, another 29.9 million shares will be placed with the International Finance Corp, the investment arm of the World Bank and a partial guarantor to True debentures.

Mr Supachai said he expected True to receive the new capital "by the first quarter of 2009".He expressed confidence that the offering would be fully subscribed, adding that the CP Group and the German development bank KfW had already pledged support for the rights offering. The two investors hold 45% of total shares and would account for nine billion baht of the 20-billion-baht offering.

"This is our biggest ever capital increase made since our founding," Mr Supachai said, adding that it would mark "a crucial starting point for True".

True has based its business model on convergence, in which new technology and customer behaviour are revolutionising the use of information and media content. True is the country's sole telecom operator with fixed-line, mobile, internet and cable-TV units.

But True's ambition has come at a heavy cost, and the company has suffered from heavy debt since the 1997 crisis. The company's stock trades at a valuation of less than four times earnings, compared with eight times for the second-ranked mobile operator DTAC and almost 12 times for market leader Advanced Info Service.

Shares of True on the Stock Exchange of Thailand closed yesterday at 1.7 baht, up four satang, in trade worth 112.47 million baht. True reported first-half profits of 65.8 million baht on revenues of 31.3 billion. Liabilities fell slightly to 109.68 billion baht as of June from 112.7 billion at the end of 2007.

Mr Supachai said the company's debt-to-EBIDTA would fall to 1:2 by 2009, compared with 3.5 times now and 13.5 times during the 1997 crisis.

"In theory, if we can maintain debt-to-EBIDTA at 1:2, we can clear our debt within two years," he said.

But he declined to say whether the rights issue would be the last capital increase for the company for now.

"There is a chance that we could opt to raise capital again in the future," Mr Supachai said with a shrug.

In a statement to the SET yesterday, True said it would lift registered capital by 100 billion baht to 153.33 billion. Shareholders will vote on the capital increase at a meeting on Dec 19, with the register closed on Nov 24.

True has been in talks with strategic investors about selling off stakes in key units such as True Move or cable TV operator TrueVisions to help raise funds.

Mr Supachai played down reports that the company had difficulty in attracting investors due to the global crisis.

"Actually, I don't think telecoms has been affected much at all by the sub-prime mortgage crisis and the financial crisis. And it is among the least affected sectors from a downturn, as telecommunications is very much a basic service for the public," said Mr Supachai.

True chief financial officer Noppadol Dej-udom said 4.5 billion baht of the new capital would be used to retire debt and 3.54 billion for the Bitco shares.

True's overall shareholding structure would not be changed by the rights issue, assuming it was fully taken up. CP now controls 30% of True, KfW 15% and individual shareholders the rest.

Mr Noppadol said True would also issue new debentures this year to refinance its long-term obligations, now 68 billion baht for the group.

Analysts said the rights issue could be taken in multiple tranches, considering the large size of the offering.

"It's quite unlikely that they could do it all at once, considering the massive offering size, weak company prospects and the low risk-appetite of investors due to the global credit crunch. Multiple tranches are more likely," said Chirasit Vuttigrai from DBS Vickers Securities.

He said even with the 70% decline in True share prices this year, heavy competition in the cellular market and the company's weak financial position continued to make the stock a risk. DBS has a target of 1.50 baht for the stock.

Montip Nitiphon, a telecom analyst at Kasikorn Securities, said she recommended investors to sell the stock, considering the volatile market and the offering's dilution impact.

"The capital increase isn't really a surprise. The company needs 8.8 billion baht next year and 12.9 billion in 2010 to meet its debt obligations," she said.

Date Posted: 11/7/2008