Asia-Pacific telecom sector well-placed to defend credit profiles
Fitch Ratings said that “Asia Pacific Telecoms: Credit Outlook 2009”,
notwithstanding the impact of the current recessionary environment, the
overall Outlook is Stable, and most operators are well-placed to defend
their credit profiles.
The report explores how key financial metrics will move for each of
the operators across Asia Pacific in 2009 and conclude that while
revenue growth is likely to slow, cash flow from operations (CFO) and
free cash flow (FCF) after dividends are likely to, on average,
moderately rise.
“Out of 24 issuers the agency rates in the region,19 bear a Stable
Outlook, and although the sector is far from being immune to the effects
of the global economic recession, the operators will be able to weather
the slowdown and maintain their credit profiles in 2009 given their
robust liquidity positions, low gearing levels, strong FCF generation,
flexibility to reduce costs and a lower sensitivity to changes in GDP
growth compared with other sectors,” said Senior Director and Head of
Fitch’s Asia Pacific Telecommunications, Media and Technology team Matt
Jamieson.
“The caution though is that while telecom operators proved to be
relatively resilient during previous economic downturns, the impact of
the recession will be felt harder this time ro
und,” said Jamieson.
For the 23 operators across Asia-Pacific for which Fitch maintains
current financial forecasts, the agency expects revenue growth to slow
for 16 operators, with overall revenue growth falling to 5.0% in 2009
from 8.1% in 2008.
This may look optimistic, particularly in comparison to Fitch’s
weighted average GDP growth forecast of only 0.8% for the 13 countries
the 23 operators are domiciled in (down from 4.1% in 2008).
However, Fitch expects ongoing subscriber growth, albeit at lower
levels than in 2008, to yield more than 10% revenue growth in China and
India, and to a lesser extent in Indonesia.
Fitch expects small, but positive, revenue growth with stable margins
to nudge the average Asia-Pacific operators’ CFO up by 7% in 2009.
In turn, Fitch expects falling capital expenditure and stable
dividends across the region to result in positive growth in FCF for
2009, although the agency expects FCF to fall for seven out of the 23
operators.
Expected maintenance of low leverage levels in 2009 suggests that
potential negative rating actions may be minimal, particularly given
that the operators currently have significant rating headroom.
For the most part, financial flexibility and liquidity for the
Asia-Pacific telecoms sector remains solid, as most operators in the
region maintain healthy cash flows and strong credit profiles.
Combined with minor refinancing risk over the rest of 2009, Fitch is
confident of the ability of the operators covered in this report to fund
maturing obligations, albeit at a much higher cost.
Fitch believes that there is potential for an uptick in M&A activity
during 2009 given that asset values are trending downwards.
China Mobile and SingTel are considered the most likely acquirers
amongst Asian telcos; however, there may also be interest from Middle
Eastern and European operators.
Interest remains focused on the higher-growth emerging markets such
as India and Indonesia. |