(Repeat for additional subscribers)
Jan 27 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed the Rating Long-Term Foreign Currency and Currency Long-Term Rating Local Issuer Default Rating (IDR) telecommunications operator PT XL Axiata Tbk (XL) The a???? BBBa????. At the same time, Fitch has affirmed the rating National Long Term XL in a???? AAA (idn) a????. Outlook is stable.
National ranking in the category of a???? AAAA???? shows the highest ranking Fitch on national rating scale for Indonesia. this ranking provided to an issuer or debt securities with the expectation of default risk the lowest relative to other issuers or securities in Indonesia.
Support From Parent Company: Rating a???? BBBa???? reflects the profile of XL credit from its parent company which has a 66.5% stake, Axiata Group Berhad (Axiata). Fitch assigned a rating of XL with base a???? Top-downa???? in accordance with the criteria a???? parent and subsidiary linkagea???? important because of its position strategically and financially on its parent company. XL is a child company of Axiata fastest-growing and contributing to 36% and 37% of the revenue and EBITDA of Axiata over a period of nine months which ended in September 2013.
Fitch believes that Axiata has adequate credit profile support XL with cash injections if needed, due to the credit profile conservative operations in Malaysia and stable yield cash. The relationship between the two companies follows a more strengthened in November 2013 when Axiata is committed to delivering shareholder loans amounting to XL for $ 500 million to partially fund the acquisition of 95% stake in PT Axis Telecom (Axis), the fifth largest mobile operator in Indonesia based on revenue market share. XL USD865 million to finance the acquisition of the with debt.
Acquisition depends on regulatory and shareholder approval and expected to be completed in late March 2014.
The Decline Standalone Credit Profile: Funds flow from operations (FFO)-adjusted net leverage of XL in 2014 will be weakened to 2.7x-2.8x (estimated at the end 2013: 2.1x and 2012: 1.6x) and from the operating EBITDAR margin would go down to approximately 40% (estimated at the end of 2013: 43% and 2012: 49%) because the company will consolidate operations from Axis that has not been making a profit by annual revenues of USD260 million.
However, Fitch believes that the XL would lower its leverage level in years 2015-17 based on its ability to generate free cash flows (FCF) approximately 4% -5% of its income, after high capital expenditure in the year 2013, because the company will realize savings in capital expenditure and Axis operational costs of acquisition.
The Improved Market Position: After the acquisition, the market share of the revenue XL will rise to 22%, precedes the second largest operator, PT Indosat Tbk (BBB / Stable) by 18%. The acquisition will give XL 15Mhz at 1800MHz spectrum, an additional 14 million customers and 1,600 telecommunication towers. Standalone credit profile into account revenue growth above the industry average and the ability to generate FCF. Focus on Data as a driver of revenue growth and the initial investment in infrastructure related to the data will allow the company to increase the share of market in the medium term.
Capital expenditures peak in 2013: Fitch believes that the capital expenditure of XL peaked in 2013 and will begin to decline in 2014 in conjunction with capital expenditure savings from the acquisition of Axis and investment slowdown associated with lower utilization of data due to network company. XL will re-generate positive FCF in 2014 after generating negative FCF in 2012-13. Fitch expects capital expenditures in 2013 will be at the lower limit of the guideline companies in IDR8trilyun a???? IDR9trilyun.
Industry Consolidation: Fitch also believes that the operating EBITDAR margin of XL will improve in 2015 as the industry will experience consolidation or smaller telecommunications companies will raise rates because their business model untenable. Operators on the basis of Code Division Multiple Access (CDMA) will remain difficult to increase market share them and faced liquidity problems. Fitch also believes that Indosat and PT Telekomunikasi Indonesia Tbk (BBB-/Stable) as the market leader will CDMA segment stop them and reallocate the spectrum for GSM.
Positive: future developments that may, individually or raise the collective level, among others:
- The rise of Fitch’s view on the credit profile of Axiata will a positive impact on the international ratings of XL. However, the increase of Foreign Currency rating S will depend on the increase of Country Ceiling. Foreign Currency ratings of XL CAD at the level of the together with the Country Ceiling at this time.
Negative: future developments that may, individually or lowering the collective inter alia:
- A decrease of Indonesia’s Country Ceiling would lead to lowered Foreign Currency ratings of XL S
- Weakening relationship with Axiata
- A decrease in the credit profile of Fitch Axiata opinion