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March 27 (The following statement was released by the rating agency)
Fitch Ratings has affirmed China Mobile Limited's (CML) Long-Term Foreign-Currency (FC) Issuer Default Rating (IDR) at 'A+' with Stable Outlook, and its Long-Term Local-Currency (LC) IDR at 'AA-' with Negative Outlook.
Key Rating Drivers
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. Fitch expects CML to maintain its dominant position over the short to medium term, due to economies of scale, robust financial position and solid execution ability.
Margins under pressure: CML's EBITDA margin declined by 2.2 percentage points in 2012. Fitch expects further margin pressure in the next two years due to higher handset subsidies and data-for-voice substitution. 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, partly due to capex in China's home-grown 4G technology - time division long-term evolution (TD-LTE); such capex was previously borne by its parent. Fitch expects higher capex to pare pre-dividend free cash flow (FCF) margin to below 10% in the next two years (2011: 21%).
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.
Constrained by sovereign ratings: CML's ratings are constrained by China's sovereign ratings (FC IDR: A+/Stable and LC IDR AA-/Negative) as CML is ultimately controlled by the Chinese sovereign. CML's standalone rating is 'AA-' with Stable Outlook.
Negative: Future developments that may, individually or collectively, lead to negative rating action on the LC IDR 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
Positive: As the ratings are constrained by the sovereign, any positive or negative sovereign rating actions would lead to a corresponding change in CML's ratings, except an upgrade of the sovereign LC IDR to 'AA'. In this scenario, the sovereign would not be a constraint on CML's LC IDR, which would be at its standalone level of 'AA-'/Stable.