4G investments impacting ratings of APAC telcos
In this article (5)
Half of the companies covered in Fitch’s APAC Telecommunications – Peer Comparison report now have limited rating headroom based on our downgrade guidelines, after investments to roll out 4G networks and, in most cases, higher dividend commitments caused net leverage to rise in recent years.
The ratings agency noted that only PT Telkom achieved high rating headroom, while PLDT, Telekom Malaysia, SK Telecom and Singtel have the least.
Some companies have gained temporary relief through cost management, asset disposals and dividend reduction, which also reflect their commitment towards deleveraging. PLDT and Advanced Info Service Public Company reduced dividends to manage their cash flows.
Rating triggers are typically less stringent for companies with strong business fundamentals and supportive market structures, which present a lower business risk profile.
Fitch considers competitive position and financial structure as key differentiating factors for APAC telcos, attaching high importance to these two sub-factors.
Competitive position captures the significance of scale benefits, strong market position and low competitive intensity in driving a robust business risk profile. Meanwhile, an issuer’s capital allocation and debt capacity underpin its financial structure.
Questions & Answers
Q.Which specific telecommunication companies in the APAC region have the least rating headroom according to Fitch?
Which specific telecommunication companies in the APAC region have the least rating headroom according to Fitch?
Fitch identified PLDT, Telekom Malaysia, SK Telecom, and Singtel as the companies with the least rating headroom. This means these companies are closest to breaching the agency's downgrade guidelines.
Q.What actions have some companies taken to temporarily improve their financial situation?
What actions have some companies taken to temporarily improve their financial situation?
Some companies have implemented cost management strategies, disposed of assets, and reduced dividend payouts. These measures reflect their commitment to reducing their debt burden and improving their financial health.
Q.What two key factors does Fitch use to differentiate between APAC telecommunication companies?
What two key factors does Fitch use to differentiate between APAC telecommunication companies?
Fitch considers competitive position and financial structure as the key differentiating factors. These two sub-factors are given high importance when assessing the telcos' overall risk profiles and ratings.
Q.How do companies with strong business fundamentals and supportive market structures influence rating triggers?
How do companies with strong business fundamentals and supportive market structures influence rating triggers?
For companies with strong business fundamentals and supportive market structures, the rating triggers are typically less stringent. This is because these characteristics indicate a lower business risk profile, providing some leeway.
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