RAM Reaffirms Telekom Malaysia MTN AAA- Rtg
(PRWEB) February 3, 2003
RAM has lifted the Rating Watch on, and subsequently reaffirmed, the AAA-rating of Telekom Malaysia Berhad’s (P.TEL) (“Telekom”) RM700 million Medium-Term Notes Programme (2001/2008).
The rating had been placed on Rating Watch in May 2002, prompted by the prospect of Telekom gaining substantial ownership of Celcom (M) Berhad (“Celcom”).
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Telekom had also proposed that both their cellular operations be merged.
The impact on Telekom’s financial profile as a result of acquiring additional equity in Celcom, as well as the direction and impact of the merger on its operations, had been uncertain at that juncture. Meanwhile, the reaffirmation of the rating takes into consideration the potential merger between Telekom’s cellular arm, TM Cellular Sdn Bhd, and Celcom. It also reflects the potential RM3.75 billion of borrowings to fund the mandatory general offer for the remaining shares in Celcom that Telekom does not currently own.
At present, Telekom holds a 31.25%-stake in Celcom, the country’s second largest cellular player. It is envisaged to further increase its stake in Celcom and subsequently emerge as a stronger player in the highly competitive cellular market. The assumption of a stronger cellular arm will reinforce Telekom’s dominant position in the local telecommunications market and allow it to benefit from the high growth potential of the cellular industry. Fortified by the Government’s substantial shareholding, Telekom’s strategic position as the national carrier also accords it the necessary regulatory support essential for a favourable business environment. We expect Telekom to continue leading the Government’s strong thrust towards the development of the local telecommunications industry. Despite the liberalisation of the local telecommunications market, Telekom’s dominance remains unscathed. It continues to hold the lion’s share of the market for traditional fixed line services a generous and stable contributor to its income stream. Its entrenched position in this segment is expected to be maintained and, coupled with a stronger foothold in cellular services, will present it with a leaner business model going forward.
In its pursuit of larger business potential, Telekom has been forced to steer away from its traditionally low level of debt and gear up rather significantly to support newer areas of growth. Inevitably, the augmented debt will heighten Telekom’s financial risk profile beyond the level of the previous years. Based on its current net operating cash flow of about RM4 billion, the higher debt level will weaken its net operating cash flow-to-gross debt ratio from 0.56 to 0.36.
The key challenge for Telekom is the proper management of its debts to alleviate any liquidity strain in any particular year. Going forward, a balance should be sought between pursuing business opportunities and aggressively funding them with borrowings. In any event, RAM remains comfortable with Telekom’s higher debt level vis-a-vis its expected cash-generating ability. We opine that its anticipated stronger business profile allows it to aptly support the higher level of indebtedness and, as such, still accords it a credit profile which commensurates with the AAA-rating.
31st January 2003 Analyst Ong Gaik Ean 03-7628 1029 gaikean@ram.com.my
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