BTS Group gets A (tha) from Fitch

Fitch Ratings (Thailand) has assigned an A (tha) national long-term rating to BTS Group Holdings Plc with a stable outlook, citing strong operations in the strategic Bangkok area and hefty income from its advertising business.

But large capital expenditure (capex) over the next three years is seen as a negative factor.

Fitch highlighted BTS Group’s strong business position operating the skytrain network, which handled 70% of ridership in Bangkok’s electric rail system in 2015.

BTS also handles media operations related to advertising space on the skytrain network, which is slated to generate strong earnings and cash flow in the medium term.

The group’s operations allow BTS to offer cross-platform advertising over mass transit, office buildings, billboards and at airports.

“BTS’s mass transit and media businesses are highly cash flow-generative and their capex requirements are low,” Fitch said in a release.

The debt burden at the company’s media operations, which are held via VGI Global Media Plc, is low, resulting in strong dividend flows.

BTS Group receives dividends from its direct 23.3% ownership of VGI and an annuity-like dividend flow from its 33.3% interest in the BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF).

But the strengths of the company are partly offset by the group’s relatively higherrisk property business, which includes significant investments in projects over the next few years, adding to financial indebtedness at the BTS Group level.

“Fitch recognises that the company’s strategy of focusing on condominium projects in prime locations that are close to mass transit stations, and involving experienced joint-venture partners, should help reduce the execution risks for these projects,” Fitch said.

BTS plans investment of 10.5 billion baht over the next three years, of which 40% is for its property and service businesses.

The company has also earmarked 15 billion baht for a slew of purposes, including acquisitions and equity injections, that could lead to negative free cash flow over the next three years.

Fitch further said BTS’s credit metrics will deteriorate over the next three years as a result of high capex and investments.

The ratings firm said BTS’s vision of reducing its overall business risk by managing exposure to its higher-risk property development operation would be a positive factor for the company in the long run.