Acumen, owned 100% by Jasmine International PCL, has been awarded two 15-year concessions from the Telephone Organization of Thailand (TOT). Besides these two concessions, Acumen has engaged in three long-term lease contracts with TOT. Pursuant to the Time Division Multiple Access (TDMA) domestic satellite network concession and three long-term lease contracts for rural distance public telephone service via satellite projects.

On December 1, 1999, Acumen Co., Ltd. issues amortized secured debenture due 2004 amounting 3,500 baht million. The debentures are offered to institutional investors in which gained numerous interest in booking and the debenturers are wholly sold out at interest rate 8.125% per year.

Underwriter is Merrill Lynch Phatra Securities. The BBB+ rating is assigned for Acumen's debentures by Thai Rating and Information Services (BBB rating implies the debt instrument with moderate investment risk, moderate capacity to pay interest and repay principal on time).

The rating assigned to Acumen Co., Ltd.'s (Acumen) secured debenture reflects the expected stability of the company's revenue stream going forward. Debentureholders have good protection because of the strength of the assignment of revenue stream from the credible payer, the Telephone Organization of Thailand (TOT), and the pledge of revenue account, debt service account and sinking fund account for payment of interest and principal. The covenants restricting Acumen's support to the other companies in the Jasmine group are additional contributing factors. However, the rating is partly offset by Acumen's aggressive financial profile and its parent company's weak financial status. Monthly revenue contributions from the TOT are mostly fixed until the expiration of concessions and lease contracts, while the major cash outflows of Acumen are only leasing of satellite transponders and salaries which are minimal compared with revenues.

Acumen, owned 100% by Jasmine International PLC, has been awarded two 15-year concessions from the TOT. Besides these two concessions, Acumen has engaged in three long-term lease contracts with TOT. Pursuant to the Time Division Multiple Access (TDMA) domestic satellite network concession and three long-term lease contracts for rural long distance public telephone service via satellite projects, the total amount of revenue stream from TOT has been fixed since the signing dates. Only the Integrated Satellite Business Network (ISBN) project has uncertain revenue sharing, because it depends on the total revenues TOT will receive from end customers. The major operating expenses for Acumen are depreciation and amortization, salaries for engineers and technicians, and leasing fees for satellite transponders, all of which account for around 61% of total revenues. Depreciation and amortization (non-cash items) account for around half of this operating expense.

Total investment cost for all five projects, including interest capitalized and exchange loss during the construction period, until the end of 1998 was Bt5,414 million. The major source of funds has been debt financing, because paid-up capital and equity value of the company as of 31 December 1998 were only Bt760 million and Bt1,240 million respectively. Successful conversion of short-term loans to long-term loans in 1999 enhances the capability of the company to service debt in the future. TRIS estimates earnings before interest, tax, depreciation and amortization (EBITDA) to gross interest will be around 4.7 times to 5.4 times, funds from operation (FFO) to total debt will be in the range of 30% to 37% and debt service coverage ratio including sinking fund (DSCR) will be in the range of 1.5 times to 1.6 times during the next two years.

Demand for telecommunication services in Thailand in the medium and long term is expected to grow significantly especially for data communication services, following the trend in developed markets. Government spending to stimulate the economy should boost capital budgets allocated to build telecommunication infrastructure. Investment spending on projects of the TOT and the Communication Authority of Thailand (CAT) are shown below.

The telecommunication master plan has been drafted and amended many times, but the objective has been the same: to improve telecommunication services by expanding telecommunication networks and encouraging increased competition. The strategy to reach this objective is to liberalize the telecommunication industry. In accordance with the World Trade Organization (WTO), the Thai government must fully liberalize the telecommunication industry by the end of 2006. The first step is to remove the regulatory power of state enterprises by privatizing them.

Acumen Co., Ltd. was established in 1988 by Jasmine International PLC to operate the satellite communication businesses for the Jasmine group. Acumen's business and financial policy is set by the parent. Jasmine International PLC was established in 1982 by Dr. Adisai Bodharamik to provide engineering consultant services. It has eight subsidiaries, but around 77% of revenues in 1998 came from three major subsidiaries: Acumen Co., Ltd., Jasmine Submarine Telecommunication Co., Ltd. and Jasmine Telecom Systems Co., Ltd.

In 1990, Acumen received a 15-year Build-Transfer-Operate concession from the TOT to design, select equipment, install, operate and maintain a domestic satellite transmission network. The network employs digital transmission technology and a Time-Division-Multiple-Access (TDMA) technique. It links to 10 telecommunication centers across the country. This network is a back-up to the landline network and for day-to-day transmissions for the TOT. Acumen started to operate this network in April 1991. Contracted capacity under the existing concession is 1,080 circuits. Revenues to be paid to Acumen is fixed at Bt18,800 per circuit/month until the concession expires in 2006. The TOT is responsible for leasing satellite transponders and Acumen bears all other operating costs. Acumen does not receive revenues during periods of network disruptions but this situation has not occurred in eight years of the operation. Total investment cost of this project was Bt695 million. The TOT has also granted transmission network concessions to a submarine optical fiber cable operated by Jasmine Submarine Telecommunication Co., Ltd. and a railway optical fiber network operated by Com-Link Co., Ltd.

In March 1991, Acumen secured a 15-year Build-Transfer-Operate concession from the TOT to install and operate an Integrated Satellite Business Network (ISBM). This network provides data, voice and image transmission services via satellite using Very Small Aperture Terminal (VSAT) technology. Revenue sharing for Acumen was 83% of total service charges to clients from 1991 to 1996, declining to 80% from 1996 to 2001 and cut to 75% from 2001 to 2006. Project revenues recorded impressive growth of 79% in 1995, 26% in 1996 and 12% in 1997. However, revenues declined by 17% in 1998. Operators who utilize Terrestrial Lease Circuits (landlines), such as UIH of UCOM group, are major competitors because they are low cost operators.

Under the TOT's Rural Long Distance Public Telephone Project, Acumen was awarded three contracts covering 5,961 villages where fixed-line services cannot reach. Acumen was contracted to install, operate and maintain satellite communication systems on a Build-Operate-Transfer basis. After completing the first phase to operate rural telephones in 500 villages in August 1994, Acumen was in good position to win more contracts, because it had a cost advantage arising from greater utilization of the existing gateways of the first phase.

Hughes Network Systems, Inc., the equipment supplier, provided technical training to operate the system and updates programs as required. Hughes also provides a technician on call 24-hrs at its offices to ensure that any problems with the system can be solved in a short period.

If Acumen's networks fail, TOT assesses a penalty fee deducted from Acumen's monthly payment, but the networks have had no material problems to date. Acumen paid Bt37,600 in penalties in 1995, none in 1996, Bt193,031 in 1997 and Bt273,518 in 1998. A risk for business interruption of the networks of Acumen may occur at satellite transponders. It is mitigated by subscribing to a premium package to ensure that the transponder provider has a back up service in case of emergency. TRIS has been informed by the management of Acument that all systems of the company were completely installed to be in compliance with Y2000.

In 1999, Acumen converted loan service obligations by extending the repayment period to 63 months. This helped strengthen Acumen's capability to service debt on time. Converting floating rate loans to fixed rate secured debentures will ensure a better match between cash inflow and outflow as 90% of revenues will be fixed until 2006. Acumen will not have any major capital expenditures in the near future because all secured projects have already been installed.

Future revenues from the existing five completed projects are expected to be in the range of Bt1,800 million to Bt1,900 million while funds from operation are expected to be in the range of Bt800 million to Bt900 million. Going forward, revenue contributions from rural telephone projects will account for 75%-80% of total revenues. Interest coverage ratio in the range of 4.7x to 5.4x, cash flow protection ratio in the range of 30% to 37% and debt service coverage ratio in the range of 1.5 times to 1.6 times during the next 2 years provide adequate protection that Acumen will meet its financial commitment on the debentures' obligation.

Total debt-to-permanent capital recorded 74% as of 31 December 1998, which is quite high, and it is slightly higher than the average ratio of all telecommunication companies listed on the Stock Exchange of Thailand, which recorded 71% of total debt-to-permanent capital in the same period. Acumen's advantage is that its revenue stream comes from a high credit institution, the TOT, and the stream is fixed until 2006. This eases Acumen's high debt risk in its capital structure compared to peers who face uncertain future cash flows.

The TOT is a financially strong state enterprise. Revenues and net profit for fiscal year 1998 were Bt46,843 million and Bt13,629 million respectively, while total liabilities and equity as of 30 September 1998 were Bt78,355 million and Bt173,039 million respectively. TRIS does not expect TOT to materially delay payment to Acumen.

1. The assignment of future revenues under the TOT's Rural Long Distance Public Telephone projects by Acumen to the trustee of debentureholders is valid if Acumen and trustee give a notice of this assignment to the TOT.
   
2. Based on the fact that the assignment of the revenues is made in return for the purchase of debentures and is done in normal business practice, the other creditors of Acumen would not be able to challenge this assignment as a fraudulent transfer.
   
3. If Acumen is bankrupt and the contracts with the TOT are not terminated and the assignment of revenues is properly made, the payment from the TOT should not be delayed or stopped because the assigned revenues are no longer the property of Acumen.
   
4. Under Thai laws, the insolvency of the parent company does not cause an insolvency of the subsidiary because the subsidiary is a separate entity.
   

In addition to the strength of the assignment of revenue stream from the credible payer, the TOT, and pledges for payment of interest and principal, debentureholders are protected by a sinking fund which will be built up on a monthly basis to reach Bt200 million by 31 December 2000. The covenants of the debentures restricting Acumen from providing any third party guarantee and limiting the maximum outstanding lending amount to any party at any time to Bt50 million also provides protection to debentureholders because the covenants limit the capability of Acumen to transfer cash to support other companies in the Jasmine group.