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02-05-2013, 11:14 PM
The business has been restructured and you should look at the pro forma financial statement to see the profit. The previous capital structure looks too scary with gearing of 3x though that included some loan from miif
Going through the prospectus, I am highlighted to the fact that it is an extremely regulated industry and hence an understanding of the relationship between cable operator, the regulator and the public will be crucial.
For e.g, NCC has just submitted a proposal to amend the current CRTA.
1) reduce the minimum network coverage requirement for a new entrant to obtain a license from 30.0% to 15.0%;
2) reduce the minimum network coverage requirement for a new entrant in a franchise area for a period of three years following the launch of commercial services from 100.0% to 50.0%; and
3) remove system operators’ right to broadcast local advertising.
Current legislation will be like forbidding anyone from owning more than 1/3 of the national subscriver.
Following rezoning of franchise area, there are also other operators who are applying for license to cover TBC Group’s franchise areas, including Taichung City.
In addition, there's even a cap rate on the fees that operator can charge. The NCC impose a cap rate of NT$600 for the whole nation and the local government is allowed to impose a cap rate that is lower than the NCC's cap rate. In 2011 and 2013, 4 of TBC's franchise suffered a cut of NT$10 and NT$15. Currently, all TBC's franchise charged at the maximum cap rate.
There's also the covenant term in the prospectus where they seemed to get stricter after a certain number of years.
"Gross debt/EBITDA ratio not exceeding 5.75 times for the initial four quarters, gradually stepping down to 3.0 times after the sixth year;"
With an EBITDA of $200 million, it seemed like TBC might have to do a right issue near the sixth year. There's also the interest coverage ratio and debt service coverage ratio which I did not calculate.
Lastly, the base fee seemed interestingly structured at a fixed fee of $7 million and will increase each year according to the percentage increase in Singapore's CPI.
Going through the prospectus, I am highlighted to the fact that it is an extremely regulated industry and hence an understanding of the relationship between cable operator, the regulator and the public will be crucial.
For e.g, NCC has just submitted a proposal to amend the current CRTA.
1) reduce the minimum network coverage requirement for a new entrant to obtain a license from 30.0% to 15.0%;
2) reduce the minimum network coverage requirement for a new entrant in a franchise area for a period of three years following the launch of commercial services from 100.0% to 50.0%; and
3) remove system operators’ right to broadcast local advertising.
Current legislation will be like forbidding anyone from owning more than 1/3 of the national subscriver.
Following rezoning of franchise area, there are also other operators who are applying for license to cover TBC Group’s franchise areas, including Taichung City.
In addition, there's even a cap rate on the fees that operator can charge. The NCC impose a cap rate of NT$600 for the whole nation and the local government is allowed to impose a cap rate that is lower than the NCC's cap rate. In 2011 and 2013, 4 of TBC's franchise suffered a cut of NT$10 and NT$15. Currently, all TBC's franchise charged at the maximum cap rate.
There's also the covenant term in the prospectus where they seemed to get stricter after a certain number of years.
"Gross debt/EBITDA ratio not exceeding 5.75 times for the initial four quarters, gradually stepping down to 3.0 times after the sixth year;"
With an EBITDA of $200 million, it seemed like TBC might have to do a right issue near the sixth year. There's also the interest coverage ratio and debt service coverage ratio which I did not calculate.
Lastly, the base fee seemed interestingly structured at a fixed fee of $7 million and will increase each year according to the percentage increase in Singapore's CPI.