Advanced Info Service Public Co. Ltd. #A-# Rating Affirmed Despite High Spectrum Outlook Stable

Stocks and Financial Services Press Releases Friday November 27, 2015 17:44
SINGAPORE--27 Nov--Standard & Poor's

SINGAPORE (Standard & Poor's) Nov. 27, 2015--Standard & Poor's RatingsServices said today that it had affirmed its 'A-' long-term corporate creditrating on Advanced Info Service Public Co. Ltd. (AIS), a Thailand-based mobilephone operator. The outlook is stable. At the same time, we affirmed our'axAA' long-term ASEAN regional scale rating on AIS.

"We affirmed the ratings because we believe AIS' capital structure can absorbthe substantial payments that the company will make at spectrum auctions,"said Standard & Poor's credit analyst Katsuyuki Nakai. "We also expect therollout of 4G services to support AIS' market position in Thailand'stelecommunication market. In addition, the eventual organization of theauctions after several months of delays could point to an improving regulatoryenvironment in the country."

AIS successfully bid Thai baht (THB) 40.9 billion at the recent auction heldby the Thai National Broadcasting and Telecommunications Commission (NBTC) onNov. 11, 2015, for 4G mobile spectrum (1,800 megahertz (MHz) license). TheNBTC has scheduled another license auction for the 900 MHz spectrum in thenext few weeks, at which AIS intends to participate.

We do not know AIS' likely bid at the next auction. However, our base caseassumes that if AIS were to have spent a total of THB70 billion at the two

auctions, the company's ratio of debt to EBITDA would likely deteriorate to1.5x–1.7x over the next two to three years, compared with 0.7x on Dec. 31,2014. Although AIS will spread its spectrum payments over the next three tofour years, we add the full amount to our debt calculation because these arecommitted future financial obligations for which AIS has provided bankguarantees.

We expect AIS's capital expenditure to remain high in 2016 due to the 3G and4G network expansion. However, we believe management has several options toprotect the balance sheet if necessary, including adjusting capital spendingand shareholders' returns. In view of these factors, we have revised ourassessment of AIS' leverage to "modest" from "minimal."

Following the auction, AIS' footprint in the 4G business has become asupporting factor for the company's competitive position, in our view.Competitors are widely promoting their 4G services, which are perceived as acompetitive advantage. In our view, the 4G service rollout will help AIS tomaintain its mobile market share of 46%, and the company has invested innetwork improvements to achieve that.

In addition, we believe Thailand's regulatory uncertainty has reduced with thespectrum auction and the transition to an upfront spectrum payment followed bylower regulatory fees, compared with the earlier build-transfer-operateregime. Entrenched, strengthened market positions and a moderating regulatoryframework translate into a one-notch improvement in AIS' credit quality.

"The stable outlook on AIS reflects our expectation that the company willmaintain a modest capital structure after the recent and upcoming spectrumauctions, with a debt-to-EBITDA ratio of 1.5x–1.7x over the next two to threeyears," said Mr. Nakai.

The outlook also reflects moderating regulatory risk in Thailand, sustainedcompetition in the domestic mobile market, and our view that AIS' marketposition will benefit from its 4G service rollout.

We may lower the rating if the spectrum license costs far exceed ourexpectation of about THB70 billion, as this would likely keep the company'sratio of debt to EBITDA at above 1.8x on a sustained basis. In addition, adeterioration in the company market share or operating performance due tostiff competition, inter alia in its 3G business, would put clear pressure onthe ratings.

We may raise the rating on AIS if the regulatory environment continues toimprove and if the company's ratio of debt to EBITDA remains well below 1.5xon sustained basis.

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