Fitch Downgrades DTAC's Rating

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Fitch downgrades Dtac's rating

The Nation

Fitch Ratings has downgraded Thailand-based telecom company Total Access Communication Plc's (Dtac) long-term foreign and local currency issuer default ratings (IDR) to 'BBB-' from 'BBB'. The outlook is stable.

The downgrade follows Dtac's announcement of special dividend payout which is projected to increase the company's funds from operations (FFO)-adjusted net leverage above 1.5 times.

On Dec 15, Dtac announced a special dividend of Bt38.9 billion, coinciding with a potential increase in capital expenditure (capex) for 3G investment over the next three years.

Although Fitch expects Dtac's earnings to remain strong in the medium term, a large special dividend payout and high upfront fee payment for 3G licence could raise Dtac's funds from operations (FFO)-adjusted net leverage to around 1.7 times at end-2012 from a net cash position at end-September. Additionally, high capex allocated to the rollout of the 3G network during 2013-2015 may keep net financial leverage at around 2 times during the period.

Overall, Dtac’s market position remains strong. The second-largest cellular operator, with a 30 per cent subscriber market share at end-September, has improved its nationwide network coverage and defended its market share despite intense competition over the past three years. Strong growth in non-voice revenue should help offset a slowdown in the traditional voice segment, resulting in a mid-single digit revenue growth over the next three years.

Still, regulatory risks remain, including the pending review of concession amendment and tighter restriction on foreign ownership laws. Furthermore, increase in competition in the cellular market could affect margins.

If regulatory issues turn favourable and non-voice revenue shows sustainable improvement, this may benefit the ratings. However, the ratings may be negatively affected by higher-than-expected investment spending and/or further high dividend payouts leading to significant deterioration in FFO-adjusted net leverage to over 2.5 times on a sustained basis. Unfavorable changes in the regulatory structure and weaker linkage between the company and its parent may also result in negative pressure on the ratings.

-- The Nation 2011-12-20