(The following statement was released by the rating agency)
HONG KONG/SYDNEY, March 27 (Fitch) Fitch Ratings has affirmed
Corporation Limited's (CTCL) Long-Term Foreign- and
Default Ratings (IDRs) at 'A'. The Outlook is Stable.
Key Rating Drivers
Strong fixed-line market position: The ratings reflect CTCL's
fixed-line subscriber position and scale of operations in China.
CTCL to maintain its near-monopoly operator status in southern
fixed-line and broadband services.
Strong mobile execution: CTCL has a solid execution ability with
business despite disadvantages of the code division multiple
technology. Its mobile service revenue rose 36% in 2012 and, as
a share of the
Chinese mobile market, expanded to 11.9% (2011: 9.8%). Fitch
believes that CTCL
is capable of making further market share gains over the next
Positive mobile strategy: Fitch believes CTCL's mobile strategy
is on track to
ensure a healthy long-term credit profile, although at the
expense of short-term
profitability. High handset subsidies required to win market
share in a
competitive market will continue to exert pressure on margins in
the short term.
However, margins should rebound in 2013 or 2014 due to cost
savings from network
rentals after its CDMA network acquisition.
Capex to increase: The ratings also take into consideration an
in capex. CTCL budgeted a 39.6% increase in its capex for 2013
to CNY75bn as it
starts to undertake mobile capex following its CDMA network
However, cost savings in network rentals are likely to help
cover most, if not
all, of its mobile capex increases.
Moderate leverage: Fitch expects CTCL's funds from operations
leverage ratio to remain below 2x in the next two years, after
taking 4G capex
into account. CTCL may start 4G capex in 2014. Fitch expects a
network rollout, focusing on high-traffic hotspots.
Solid liquidity and flexibility: CTCL's CNY33bn cash position at
comfortably covered CNY17bn current debt (total debt CNY100bn).
committed credit facilities were CNY163bn at end-2012. Also, 62%
of its total
debt was payable to its parent company.
Negative: Future developments that could individually or
collectively lead to
negative rating actions include
- FFO-adjusted net leverage above 2x on a sustained basis
- EBITDAR margin below 30% on a sustained basis
Positive: Due to CTCL's smaller mobile market share relative to
competitors', as well as its likely lower profitability and
higher capex, a
rating upgrade is unlikely in the medium term.
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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
Rating Telecom Companies
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