Fitch Downgrades China Mobile's Local Currency Rating

Wed Apr 10, 2013 2:17am EDT

(The following statement was released by the rating agency) HONG KONG, April 10 (Fitch) Fitch Ratings has downgraded China Mobile Limited's (CML) Long-Term Local-Currency (LC) Issuer Default Rating (IDR) to 'A+'. The Long-Term Foreign-Currency (FC) IDR is affirmed at 'A+'. Both the Outlooks are Stable. Key Rating Drivers Sovereign rating downgrade: CML's LC ratings downgrade follows the same action on the China's sovereign rating. For more information, please see "Fitch Affirms China's FC IDR at 'A+'; Downgrades LC IDR to 'A+' " dated 9 April 2013. Constrained by sovereign ratings: CML's ratings are constrained by China's sovereign ratings (A+/Stable) as CML is ultimately controlled by the Chinese sovereign. CML's standalone rating is 'AA-' with Stable Outlook. Dominant position maintained: The ratings reflect CML's dominant position in China's mobile market and strong financial performance. In 2012, its mobile subscriber and service revenue market shares were 64% and 71.9% respectively. Margin pressure: EBITDA margin fell by 2.2 percentage points in 2012. Fitch expects higher handset subsidies and data-for-voice substitution to further pressurise margin in the next two years. However, CML's EBITDA margin remains among the highest in the global peer group. Capex to rise: The ratings also take into consideration an expected increase in capex in the next two years. CML has increased its capex budget for 2013 by 49% to CNY190bn. Fitch expects higher capex to pare pre-dividend free cash flow (FCF) margin to below 10% in 2013-2014 from 21.4% in 2012. Ample liquidity: CML's liquidity is strong; at end-December 2012 its unrestricted cash balance of CNY403bn significantly exceeded total debt of CNY29bn. Fitch expects CML to maintain its strong net cash position, even after considering higher capex in the next two years. Rating Sensitivities Negative: Future developments that may, individually or collectively, lead to a downgrade of the standalone rating to 'A+' include: - reversal of its net cash position - pre-dividend FCF margin falling below 8% on a sustained basis - Operating EBITDAR margin falling below 45% on a sustained basis (2012: 49%) As CML's ratings are constrained, any downgrade of the sovereign ratings will lead to a corresponding downgrade in CML's ratings. However, barring a negative sovereign rating action, CML has high rating headroom and Fitch therefore does not envisage a downgrade to 'A' from 'A+' over the medium term due to deterioration in operating or financial performance. Positive: Future developments that may, individually or collectively, lead to a positive rating action include: - A positive sovereign rating action Contact: Primary Analyst Kelvin Ho Director +852 2263 9940 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Alvin Lim Director + 82 2 3278 8371 Committee Chairperson Steve Durose Senior Director +61 2 8256 0307 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com. The issuer did not participate in the rating process other than through the medium of its public disclosure. The ratings above were unsolicited and have been provided by Fitch as a service to investors. Applicable criteria, Corporate Rating Methodology, dated 8 August 2012, are available at www.fitchratings.com. Applicable Criteria and Related Research Corporate Rating Methodology here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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