Fitch Affirms Telkomsel's Debt Ratings on Singtel Support
Published on: 21st May 2012
Note -- this news article is more than a year old.
By: Ian Mansfield
Fitch Ratings has affirmed Indonesia based Telekomunikasi Selular's (Telkomsel) Long Term Foreign and Local Currency Issuer Default Ratings at 'BBB' and 'BBB ' respectively. Its National Long Term Rating has been affirmed at 'AAA(idn)' and foreign currency senior unsecured rating at 'BBB'. The Outlook is Stable.
Fitch said that the ratings reflect Telkomsel's continuing position as Indonesia's leading telecom operator. At end-2011, of the country's top-three cellular operators (covering around 75% subscriber market share), Telkomsel had a subscriber market share of 52% and revenue (net of interconnection charges) market share of 54%. Its FY11 credit metrics were strong with an EBITDA margin (based on revenue net of interconnection charges) of 59.8% (FY10: 62.2%), free cash flow (FCF) margin of 14.8% (-0.9%) and funds flow from operations (FFO)-adjusted net leverage of 0.3x (0.35x).
Fitch believes Telkomsel will maintain its leading market position and strong credit metrics in the medium term based on the stable growth of the telecom industry and Telkomsel's product diversification. This is despite a gradual erosion of EBITDA margins due to competition.
Telkomsel's Local Currency IDR continues to be rated two notches above the sovereign rating of 'BBB-' due to provisions of a shareholder agreement between Telekomunikasi Indonesia (Telkom) and, Singapore Telecommunications (SingTel) whereby SingTel, which holds a 35% stake, has significant minority rights. Fitch also positively notes that Telkom's plan to buy back SingTel's stake in Telkomsel has been cancelled. The Foreign Currency IDR is constrained by Indonesia's Country Ceiling at 'BBB'.
Telkomsel will increase capex in 2012 to USD1.1bn (FY11: USD850m) with significant investment for improving data capacity. However, improving cash flow from operations (CFO) will support the company in self-financing this capex and maintaining positive FCF. Data is expected to be a key revenue growth driver, as revenue from traditional voice and SMS growth declines.
Telkomsel's Foreign Currency IDR may be downgraded if there is a downgrade of the Country Ceiling. The Local Currency IDR would be constrained at Telkom's 'BBB-' rating if SingTel's influence over key decisions weakens, through a sale of its stake or changes to the shareholders' agreement. A negative rating action on Telkomsel's Local Currency IDR could also result from significant increase in capex and/or shareholder payouts leading to negative FCF. Conversely, any positive changes in the sovereign rating/Country Ceiling may lead to a corresponding change in Telkomsel's ratings.