Fitch Afirms Debt Ratings for Thailand's AIS

Fitch Ratings has affirmed Advanced Info Service's (AIS) Long-term foreign currency Issuer Default Rating at 'BBB+', National Long-term rating at 'AA(tha)' and National Short-term rating at 'F1+(tha)'. The Outlook remains Stable.

Fitch said that the ratings of AIS reflect its leading market position as Thailand's largest mobile operator, supported by its strong branding and extensive network coverage. AIS's business profile is also underpinned by its proven management track record in the challenging operating environment, alongside its continuing market leadership as Thailand's largest mobile phone operator with a 51.4% market share of revenues at end-2008.

AIS's ratings also reflect its strong financial position, evidenced by strong cash flow generation and low financial leverage. In 2008, AIS's operating EBITDAR increased by 6.4% to THB46.7bn, while its EBITDAR margin improved to 42.1% from 40.5% in 2007. Its financial position remained solid, with a low adjusted net debt to EBITDAR leverage ratio of 0.5x at end-2008. Although AIS's profitability and cash flow could experience mild pressure due to the economic slowdown in 2009, Fitch considers that the company still has the flexibility to reduce operating and marketing costs, and new investment expenditure if required.

AIS has also benefited from a competitive cost structure as a result of its large subscriber base, although there is a risk that the interconnection framework announced by Thailand's National Telecommunication Commission could reduce the regulatory-related cost competitiveness.

Key credit concerns include the high capex required to maintain network quality and coverage, including the rollout of a new 3G network, as well as intense competition and regulatory uncertainties in the Thai telecom industry. These factors could weaken AIS's strong financial position, particularly if dividend payouts remain high. However, AIS's low financial leverage should provide flexibility to absorb new investments and/or lower margins.

The Stable Outlook reflects Fitch's expectation that AIS should continue to generate solid earnings performance, and keep its market share and financial leverage consistent with the current credit profile, despite an increase in network investment planned over the next two to three years. Positive rating triggers include a sustainable improvement in average revenue per user and non-voice revenue, as well as sustainable positive free cash flow generation accompanied by a substantial reduction in net debt. Conversely, negative rating triggers include an unfavourable change in regulatory structure; a substantial increase in competition resulting in lower revenue and margins; higher-than-expected investment spending resulting in sustained adjusted net debt to EBITDAR above 1.5x; and, a downgrade of Fitch's current 'BBB+' Country Ceiling rating for Thailand.

Posted to the site on 7th May 2009