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Low headroom for APAC telcos’ ratings; 2022 improvements modest

Fitch Ratings expects industry consolidation, and a gradual resumption of roaming revenues with border curbs easing off, to drive modest improvements in net leverage and mid-single-digit growth for Asia-Pacific (APAC) telecoms revenue. M&A may gain traction in some jurisdictions in 2022, as scale becomes important for 5G.

Our sector outlook for 2022 is neutral. We expect limited rating movements over the next 12 months, with 12 of our 15 publicly rated Foreign-Currency Issuer Default Ratings on stable outlook as of end-October 2021. However, nine of the rated companies have low rating headroom, suggesting limited capacity to take on more debt without generating more operating cash flow.

The Negative Outlooks on Indian telco Bharti Airtel Limited (BBB-) and tower operator Summit Digitel Infrastructure Private Limited (BBB-) are sovereign-driven. Meanwhile, the Rating Watch Negative on Indonesian mobile operator PT Indosat Tbk (BBB/AAA(idn)) reflects our view that a change of control following the announced merger with mobile operator PT Hutchison 3 Indonesia (Hutch) would lead to removal of the three-notch rating uplift applied to Indosat’s pre-merger Standalone Credit Profile of ‘bb’.

We expect telcos to maintain prudent capital management through staggered 5G investment and disciplined shareholder return policies to preserve balance-sheet strength. Other issues for investors to watch include the sustainability of tariff increases in Indian wireless services; a successful execution of Singapore’s 5G standalone network which would build investment confidence in use cases and network deployment; as well as regulatory outcomes of the Indosat-Hutch merger in Indonesia and Celcom-DiGi in Malaysia to rebalance competition in these markets. CT Bureau

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