Fitch Upgrades DTACs IDR BBB, National Rating to AA(tha)

Stocks and Financial Services Press Releases Monday October 28, 2013 16:53
Bangkok--28 Oct--Fitch Ratings

Fitch Ratings has upgraded Total Access Communication Public Company Limited’s (DTAC) Long-Term Foreign-Currency and Local-Currency Issuer Default Ratings (IDR) to ‘BBB’ from ‘BBB-’, National Long-Term Rating to ‘AA(tha)’ from ‘A+(tha)’, National Short-Term Rating to ‘F1+(tha)’ from ‘F1(tha)’ and senior unsecured rating to ‘AA(tha)’ from ‘A+(tha)’. The Outlooks on the Long-Term Ratings are Stable.

Key Rating Drivers

Positive Regulatory Development: The rating upgrade reflects Fitch’s view that the issuance of new 3G licences in 2012 is a positive step for Thai regulatory and policy frameworks. The new licences have provided a clearer regulatory, policy and legal framework and promoted a more level playing field among telecom operators, compared to the concession system.

Non-Voice Supports Growth: The spectrum allocation is likely to boost DTAC’s network capacity and support rapid growth in mobile data traffic over the medium term. Fitch expects non-voice revenue for the Thai mobile sector to continue to grow by 25%-30% per annum over the next two years. The potential increase in non-voice revenue should help offset slower growth in the traditional voice service.

Large Investment, Adequate Headroom: The licence fees and high investment in the 3G network will lead to an increase in DTAC’s net debt and financial leverage over the next three years, but Fitch believes that its solid operating cashflow generation and large rating headroom should help the company absorb the effect of higher capital investment. At end-H113, DTAC’s funds flow from operations (FFO)-adjusted net leverage was healthy at 1.0x. We expect the ratio to be 1.7x at end-2013.

Strong Market Position: DTAC has a strong market position as Thailand’s second-largest cellular operator, with 31% service revenue market share in 2012. Over the past few years, the company has continued to expand its network capacity to support strong growth in the non-voice segment and defended its market share despite intense competition.

Parent Support: Under Fitch’s parent and subsidiary rating linkage methodology, the agency rates DTAC on a bottom-up basis. It receives a one-notch uplift to reflect implied support from its parent, Telenor of Norway, which has strong board and management control. Consequently, any changes in Telenor’s ownership or support linkage of DTAC would result in a reassessment of the level of support from its parent.

Rating Sensitivities
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
  • an increase in FFO-adjusted net leverage above 2.5x on a sustained basis
  • unfavourable regulatory changes
  • a weakening in linkage between the company and its parent
Positive: Future developments that may, individually or collectively, lead to positive rating action include: