KUALA LUMPUR (June 29): Moody’s Investors Service has affirmed Axiata Group Bhd’s Baa2 issuer rating.
The agency said it has also affirmed the provisional (P)Baa2 senior unsecured ratings on the sukuk issuance programme established by Axiata SPV2 Bhd, the euro medium-term note programme established by Axiata SPV5 (Labuan) Ltd, as well as the Baa2 rating on all backed senior unsecured notes issued by the entities, which are wholly-owned subsidiaries of Axiata.
The rating outlook remains stable, Moody’s said in a statement.
According to Moody’s, the rating affirmation reflects its view that Axiata’s recently-announced merger of its Malaysian operations with Norwegian telecom company Telenor ASA (A3 stable) is broadly neutral for Axiata’s credit profile.
Moody’s vice president and senior analyst Nidhi Dhruv said the merger, if consummated, will create a new cellular leader in Malaysia – effectively doubling Celcom Axiata Bhd’s size, coverage in market operations and improving profitability.
“The reduction in the number of mobile network operators would also partially alleviate competitive intensity in Malaysia that was hurting Celcom’s operational and financial profile,” said Nidhi , who is also Moody’s lead analyst for Axiata.
She also said the deconsolidation of Celcom will reduce Axiata’s adjusted leverage to 1.9 times to 2 times post-merger, as compared with her previous expectation of up to 2.2 times without the merger.
Meanwhile, she noted that as a holding company, Axiata relies on dividends from its subsidiaries and associates for servicing its debt.
“The credit impact of the merger would ultimately depend on the dividend policies adopted by Celcom Digi Bhd. However, the ratings affirmation assumes that these dividend flows will be reasonably maintained in order to preserve Axiata’s cash flow,” she added.
While expecting dividends from Celcom Digi to broadly offset loss of dividends from Celcom, Moody’s will also evaluate the extent to which Axiata supports debt of the merged company, when details become available.
Meaningful support of debt at the merged entity would be credit negative for Axiata and elevate leverage, it said.
In addition, post-merger, it said a greater proportion of Axiata’s consolidated cash flows will come from emerging and frontier markets, which enhance Axiata’s growth prospects but present risks such as uncertain regulatory regimes and political instability.
However, the breadth of Axiata’s holdings and financial discipline at the subsidiary level help mitigate volatility, and regulatory and operational uncertainties in any one country, it said.
According to Moody’s, Axiata’s Baa2 ratings continue to incorporate the extraordinary support that Moody’s believes the government of Malaysia (A3 stable) is likely to provide in a distress situation, which results in a one-notch uplift from its Baseline Credit Assessment of baa3.
Meanwhile, Moody’s said the stable outlook reflects Moody’s expectation that Axiata will maintain its solid operating and financial profiles, given the increasing dividend contributions from its international subsidiaries.
“Moody’s expects dividends from Celcom Digi to broadly offset loss of dividends from Celcom, and that Axiata will not guarantee any debt at the merged company.
“The stable outlook could be pressured to the extent that these assumptions are inconsistent with final outcomes,” it said.
At market close today, Axiata closed one sen or 0.26% lower at RM3.79, giving it a market cap of RM34.76 billion.
