Fitch Affirms Telekom Malaysia at 'A-'; Outlook Stable

Published on: 9th Oct 2012

Fitch Ratings has affirmed Telekom Malaysia's Long-Term Issuer Default Rating (IDR) and senior unsecured rating at 'A-', respectively. The Outlook is Stable.

­The ratings are notched up one level from Telekom Malaysia's standalone 'BBB+' rating to reflect actual and implied support from the Malaysian sovereign. The government collectively owns 51.5% of Telekom Malaysia through Khazanah Nasional Berhad, the employees' provident fund board and Amanah Raya Trustees Berhad.

As the country's leading fixed-line and broadband company, Telekom Malaysia continues to be strategically important to Malaysia. The government exercises significant influence on Telekom Malaysia's strategic and operative decisions through its representation on the company's board of directors.

A one-time capital repayment of MYR1.1bn in August 2012 has reduced the headroom in the company's ratings. Fitch expects this repayment to lift funds flow from operations (FFO)-adjusted net leverage to 1.7x-1.8x by end-December 2012, closer to the agency's negative guidance of 2.0x. Fitch expects Telekom Malaysia to continue with its normal dividend policy of minimum MYR700m or 90% of its net income and the agency does not expect further significant capital repayments in the short term. During 2008-2012, special distributions totaled MYR5.7bn, as Telekom Malaysia returned the sale proceeds of its stake in Axiata Group Berhad and of other non-core assets to shareholders.

Nevertheless, Fitch expects Telekom Malaysia's balance sheet to improve in the next 12 to 24 months due to stable operating EBITDAR margins (36%-37%) and lower capex. Telekom Malaysia's operating EBITDAR margins should benefit from growing economies of scale in the high speed broadband (HSBB) segment which is likely to offset a decline in data tariff due to rising competition. Fitch also expects Telekom Malaysia's capex as a share of revenue to peak at 24%-25% in 2012 as the majority of its HSBB network is completed.

 

Tags: [telekom malaysia]  [Malaysia]