(The following was released by the rating agency)
HONG KONG/SEOUL, October 23 (Fitch) Fitch Ratings has
affirmed Taiwan-based Chunghwa Telecom Co., Ltd's (CHT):
Long-Term Foreign- and Local-Currency Issuer Default Ratings
(IDRs) at 'AA-'. The agency has also affirmed CHT's National
Long-Term Rating at 'AAA(twn)'. The Outlooks are Stable. The
agency has simultaneously withdrawn all the ratings.
The ratings have been withdrawn as they are no longer
considered by Fitch to be relevant to the agency's coverage.
Fitch will no longer provide rating or analytical coverage of
The ratings reflect CHT's continued leadership in Taiwan's
telecom market with solid cash flow generation and strong
financial flexibility. Although CHT's operating EBITDAR margin
and post-dividend free cash flow (FCF) are likely to deteriorate
in 2012, Fitch expects the company's medium-term credit profile
to remain compatible with the current rating level. CHT remains
the largest integrated telecom operator in Taiwan, with revenues
accounting for around half of Taiwan's telecoms service market.
The company enjoys leading positions in local and international
telephony, mobile, broadband access and internet services. In
subscriber market share terms, CHT controlled 95.1%, 34.8% and
79.7% of local fixed-line, mobile and broadband access services,
respectively, at end-June 2012.
CHT recorded steady revenue growth in 2011 and H112, driven
by higher mobile data revenue and smartphone sales. However, its
operating EBITDAR margin has deteriorated due to tariff cuts,
higher cost of handsets sold, including those from its
subsidiary Senao, as well as growth in the lower-margin
corporate solution and information and communication technology
business. Fitch expects CHT's operating EBITDAR margin to fall
below 40% and post-dividend FCF to turn negative in 2012. Fitch
believes that the sub-40% operating EBITDAR margins and a single
year of negative FCF will not lead to a change in CHT's credit
profile over the medium term due to its strong net cash position
and solid cash flow from operations. CHT had net cash in excess
of TWD65.5bn at end-2011. In addition, the company has the
lowest funds flow from operations (FFO)-adjusted leverage among
major peers in Asia-Pacific.
Fitch believes that CHT's leading market position will help
underpin its large net cash position. The agency expects CHT's
FFO-adjusted gross leverage to be 0.2x (2011:0.04x) and
FFO-adjusted net leverage to be -0.5x in 2012.
Fitch expects CHT's post-dividend FCF to turn positive in
2013 and thereafter; CHT's stated policy is to primarily rely on
cash flow from operations and, to a lesser extent, loans from
commercial banks to fund capital expenditure, make dividend
payments, repay debts and fulfil other commitments.