Bangkok--23 Feb--Fitch Ratings
Fitch Ratings-Bangkok/Singapore-23 February 2007: Fitch Ratings has today placed the ratings of Advanced Info Service Plc ("AIS") and Total Access Communication Plc ("DTAC") on Rating Watch Negative ("RWN"). At the same time, Fitch also assigned a Long-term foreign currency Issuer Default rating ("IDR") of 'BBB+' to AIS. The ratings placed on RWN today are as follows:
AIS: Long-term foreign currency IDR 'BBB+', National Long-term 'AA(tha)', National Short-term 'F1+(tha)';
DTAC: Long-term foreign currency IDR 'BB+', National Long-term 'A(tha)', Short-term 'F1(tha)', senior unsecured debentures rated 'A(tha)'.
The RWN follows heightening policy, regulatory and legal risks that could substantially affect the major telecom operators in Thailand. The agency notes that these risks may go beyond merely a tightening in the foreign ownership laws proposed last month. Rising policy uncertainties may lead to a review of the concessions for the telecom operators in Thailand which could also affect new investment and shareholder support. The RWN will be resolved once there is greater certainty on the key policy and regulatory issues.
AIS' ratings are based on its strong financial position and leading market position as Thailand's largest cellular operator, supported by its strong national network coverage. AIS also benefits from its competitive cost structure as a result of its large subscriber base and relatively low regulatory-related cost structure. However, regulatory reforms such as the interconnection framework proposed by Thailand's National Telecommunication Commission ("NTC") and increased competition could see continued pressure on margins. During the first nine months of 2006 ("9M06"), AIS's cellular service revenue declined 4% yoy, while EBITDA margin dropped to 49% from 54% in 9M05. However, AIS' current low financial leverage with net debt-to-EBITDA ratio of 0.5x at end-9M06 provides a high level of financial flexibility to absorb high dividend payouts, large investments or lower margins.
DTAC's ratings reflect its strong market position, strengthening financial position and shareholder support from Telenor of Norway. At end-2006, DTAC's net debt-to-EBITDA ratio continued to improve to 2.1x from 2.4x at end-2005. Nonetheless, in light of intensified competition and the effort to improve network coverage in remote areas, DTAC will likely continue to make higher investments as a percentage of revenue, compared to AIS. For 9M06, DTAC's total capital expenditures to revenue ratio was 23.7% (2005; 23.6%), compared to that of 18.1% for AIS (2005; 17.5%).
Notwithstanding these policy and regulatory risks, the underlining performance of AIS and DTAC should remain strong in 2007, despite moderating subscriber growth.