(The following statement was released by the rating agency)
Dec 20 - Fitch Ratings has downgraded Thailand-based telecom company Total Access Communication Public Company Limited's (DTAC) Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) to 'BBB-' from 'BBB'. The Outlook is Stable. A full rating breakdown is provided below.
The downgrade follows DTAC's announcement of special dividend payout which is projected to increase the company's funds from operations (FFO)-adjusted net leverage above 1.5x, Fitch's guideline for negative rating action.
On 15 December 2011, DTAC announced a special dividend of THB38.9bn payable on 12 January 2012. This dividend payout coincides with a potential increase in capex for 3G investment over the next three years. Although Fitch expects DTAC's earnings to remain strong in the medium term, a large special dividend payout and high upfront fee payment for 3G licence could raise DTAC's FFO-adjusted net leverage to around 1.7x at end-2012 from a net cash position at end-9M11. Additionally, high capex allocated to the rollout of the 3G network during 2013-2015 may keep net financial leverage at around 2.0x during the period.
DTAC's ratings are supported by its strong market position as Thailand's second-largest cellular operator - with a 30% subscriber market share at end-9M11. The company has improved its nationwide network coverage and defended its market share despite intense competition over the past three years.
The ratings also reflect DTAC's ability to consistently generate strong earnings and cash flow from operations. Strong growth in non-voice revenue should help offset a slowdown in the traditional voice segment, resulting in a mid-single digit revenue growth over the next three years. For 9M11, DTAC's revenue and EBITDAR grew 10.8% and 13.2% year-on-year (yoy), respectively, while FFO increased to THB16.7bn from THB15.3bn.
Under its parent and subsidiary rating linkage methodology, Fitch rates DTAC on a bottom-up basis, with a one-notch uplift to reflect implied support from its parent, Telenor, which has a 65.5% economic interest in DTAC and strong board and management control. Consequently, any changes in Telenor's ownership in DTAC would result in a reassessment of the level of support from its parent.
Other credit risks are uncertainty over regulatory, policy and legal issues. These include the pending review of concession amendment and tighter restriction on foreign ownership laws. Furthermore, increase in competition in the cellular market could affect margins.
The ratings may benefit from favourable resolution of regulatory issues and a sustainable improvement in non-voice revenue and EBITDAR margin accompanied by a reduction in FFO-adjusted net leverage below 1.5x on a sustained basis. Conversely, the ratings may be negatively affected by higher-than-expected investment spending and/or further high dividend payouts leading to significant deterioration in FFO-adjusted net leverage to over 2.5x on a sustained basis. Unfavorable changes in the regulatory structure and weaker linkage between the company and its parent may also result in negative pressure on the ratings.
Long-Term Foreign Currency IDRs downgraded to 'BBB-' from 'BBB'; Outlook Stable
Long-Term Local Currency IDRs downgraded to 'BBB-' from 'BBB'; Outlook Stable
National Long-term rating downgraded to 'A+(tha)' from 'AA-(tha)'; Outlook Stable
National Short-term rating downgraded to 'F1(tha)' from 'F1+(tha)'
Senior unsecured debentures downgraded to 'A+(tha)' from 'AA-(tha)'
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