Half of the companies covered in Fitch’s APAC Telecommunications – Peer Comparison report now have limited rating headroom based on our downgrade guidelines, after investments to roll out 4G networks and, in most cases, higher dividend commitments caused net leverage to rise in recent years.
The ratings agency noted that only PT Telkom achieved high rating headroom, while PLDT, Telekom Malaysia, SK Telecom and Singtel have the least.
Some companies have gained temporary relief through cost management, asset disposals and dividend reduction, which also reflect their commitment towards deleveraging. PLDT and Advanced Info Service Public Company reduced dividends to manage their cash flows.
Rating triggers are typically less stringent for companies with strong business fundamentals and supportive market structures, which present a lower business risk profile.
Fitch considers competitive position and financial structure as key differentiating factors for APAC telcos, attaching high importance to these two sub-factors.
Competitive position captures the significance of scale benefits, strong market position and low competitive intensity in driving a robust business risk profile. Meanwhile, an issuer’s capital allocation and debt capacity underpin its financial structure.