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Singapore Telcos' Credit Profiles Intact Despite New Mobile Network

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Fitch Ratings says that the credit profiles of Singapore telcos will remain stable, supported by moderate competition, stable profitability and slowing capex.

However, Singtel's rating headroom remains limited, as its funds flow from operations (FFO)-adjusted net leverage is likely to stay close to Fitch's 2.0x negative guidance because of high capex and dividend commitments.

Fitch believes the potential entry of a new mobile network operator (MNO) will not intensify competition in the telecoms sector that much in 2016 and 2017. The new entrant would face huge capital outlay, spectrum limitation, and cost disadvantages in the absence of a regulated wholesale pricing framework. Fitch forecasts the industry's revenue to grow by the low-single-digits and operating EBITDA margins to remain steady at around 32% in 2016.

Average industry capex should decline to around 11%-12% of revenue (2015: 13%), as all three telcos have largely completed their long-term evolution (LTE) network expansion.

A significant increase in competition due to a change in IDA's stance to regulate wholesale pricing for the mobile market and/or implement infrastructure sharing could change the outlook on the sector to negative.

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Tags: fitch ratings  singtel  Singapore