Moody's Investors Service has downgraded the corporate family rating of True Corporation and the corporate family and senior unsecured bond ratings of its consolidated subsidiary True Move to B3 from B2.
Moody's also placed all ratings under review for further downgrades.
"The move reflects the prolonged character of True Corporation's negative free cash flow (FCF) due to weak earnings from the mobile business and a high level of capital expenditures. As a result, we expect its financial and liquidity profiles to remain under pressure in the coming 12-18 months," said Yoshio Takahashi, a Moody's assistant vice-president.
True's negative FCF rose to 21 billion baht for the 12-month period ended Sept 30, up from 6 billion in 2011 and below Moody's expectations.
Moody's estimates the company's negative FCF will remain at a similar level next year, given the large capital requirements for 3G and the potential for additional spectrum fee payments following the 1.8-gigahertz spectrum auction.
True's reported consolidated earnings before interest, taxes, depreciation and amortisation (EBITDA) margin will likely stay weak, said the service.
The company reported its consolidated EBITDA margin dipped to 17.6% in the third quarter from 19.8% in the first quarter and 18.8% in the second.
Given the continued increase in debt, its leverage - measured by adjusted debt/EBITDA - will likely increase to 6.5 times in the coming 12 months from 6.1 times for the 12-month period ended on Sept 30. Such financial metrics are weak for the rating level.
Moody's believes True's liquidity profile remains strained. In Moody's estimation, internal cash sources from next year's fourth quarter will measure 40 billion baht, comprising cash holdings of 7.6 billion, undrawn committed bank facilities of 24.2 billion as of this past September and expected operating cash flow of 8.2 billion.
Moody's figures this total will be insufficient to cover its expected capital expenditures of 25-30 billion baht and debt maturities of 19.4 billion during the same period.
True Corporation is seeking Securities and Exchange Commission approval to raise funds from the launch of an infrastructure fund.
But Moody's is unsure whether True can establish it in a timely manner, how much cash it can generate or how much debt it can reduce.
Shares of TRUE closed yesterday on the SET at 8.80 baht, down 10 satang, in heavy trade worth 1.63 billion baht.