Bangkok--28 Oct--Fitch Ratings
Fitch Ratings has upgraded Advanced Info Service Public Company Limited’s (AIS) National Long-Term Rating to ‘AA+(tha)’ from ‘AA(tha)’ and senior unsecured rating to ‘AA+(tha)’ from ‘AA(tha)’. The Outlook on the National Long-Term Rating is Stable.
At the same time, the agency has affirmed AIS’s Long-Term Foreign-Currency and Local-Currency Issuer Default Ratings (IDR) at ‘BBB+’, and National Short-Term Rating at ‘F1+(tha)’. The Outlooks on the Long-Term IDRs are Stable.
Key Rating Drivers
Positive Regulatory Development: The rating upgrade reflects Fitch Ratings’ view that the issuance of new 3G licences in 2012 is a positive step for Thai regulatory and policy frameworks. The new licences have provided a clearer regulatory, policy and legal framework and promoted a more level playing field among telecom operators, compared to the concession system.
International Ratings Unchanged: AIS’s Long-Term Local-Currency and Foreign-Currency IDRs are unlikely to be upgraded before the licensed 3G business dominates operating EBITDAR and the company can generate positive free cash flows.
3G Supports Growth: The spectrum allocation should boost AIS’s network capacity and support rapid growth in mobile data traffic over the medium term. Fitch expects non-voice revenue for the Thai mobile sector to continue to grow by 25%-30% a year to end-2015. Potential growth in non-voice revenue should help offset slower growth in traditional voice service.
Flexibility to Support Investment: The licence fee and high investment cost for the 3G network will lead to an increase in net debt and financial leverage through 2016, but we believe that AIS’s solid operating cash flow generation and large rating headroom should help the company absorb the effect of higher capex investment. At end-Q213 AIS’s funds flow from operations (FFO)-adjusted net leverage was healthy at just 0.16x.
Leading Market Position: AIS has a strong market position as the largest mobile operator in Thailand, with service revenue market share of 51% in 2012. It benefits from a competitive cost structure due to its large subscriber base. AIS’s market position is also supported by its strong brand and extensive network coverage.
Rating Sensitivities
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- an increase in FFO-adjusted net leverage above 1.5x on a sustained basis
- unfavourable regulatory changes
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- sustained positive free cash flow
- Operating EBITDAR dominated by the licensed 3G business
- Operating EBITDAR margin above 45% on sustained basis (2012: 44.3%)