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APAC Telcos’ 2023 leverage to remain stable, despite high 5G Capex

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Fitch Ratings-Singapore-28 November 2022: Fitch Ratings expects APAC telcos’ median 2023 leverage to remain stable, supported by easing competition amid ongoing industry consolidation. Free cash flow (FCF) generation will improve, but will remain limited, as modest EBITDA growth will be consumed to either build or expand 5G infrastructure. Our sector outlook for 2023 is neutral.

We have only one market on an improving outlook – India – versus two (India and Malaysia) in 2022. We have only one market – Sri Lanka – on a deteriorating outlook. The portfolio comprises investment-grade companies, supported by underlying strength and, in some cases, influence from higher-rated parents. The rating outlook distribution has been mostly stable over the past three years. We expect limited rating changes over the next 12 months, with all of the 17 publicly rated Foreign-Currency Issuer Default Ratings on stable outlook as of end-November 2022. However, four of the rated companies have low rating headroom, suggesting limited capacity to take on more debt without incremental operating cash flow.

Our view on Bharti Airtel Limited’s (Bharti, BBB-/Stable) underlying credit quality is currently ‘BBB-‘/Positive, which indicates the Foreign-Currency IDR Outlook could be revised to Positive if India’s Country Ceiling were to be raised to ‘BBB’. The Indian telcos sector may be heading towards a private-sector duopoly if Vodafone Idea continues to weaken. The rating headroom is improving for Singapore Telecommunications Limited (Singtel, A/Stable), SK Telecom Co., Ltd (SKT, A-/Stable) and PT Indosat Tbk (Indosat, BBB-/Stable).

Indonesian tower companies PT Tower Bersama Infrastructure Tbk (TBI, BBB-/Stable) and PT Profesional Telekomunikasi (Protelindo, BBB/Stable) retain low to moderate ratings headroom, although both generate strong pre-dividend FCF.

CT Bureau

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