RAM Ratings assigns AAA/Stable/P1 ratings to Telekom’s proposed sukuk issue

Published on 22 November 2013

RAM Ratings has assigned AAA/Stable/P1 ratings to Telekom Malaysia Berhad’s (“TM” or “the Group”) Proposed Islamic Commercial Papers Programme (2013/2020) and Islamic Medium-Term Notes Programme (2013/2033)  with a combined nominal value of up to RM3 billion (“Proposed Sukuk Wakalah Programmes”). Concurrently, RAM has reaffirmed the AAA ratings of the Group’s and Hijrah Pertama Berhad’s existing issues (refer to table below). All the long-term ratings have a stable outlook.

Instrument	Rating Action	Rating(s)
Telekom Malaysia Berhad
Proposed Sukuk Wakalah Programmes	Assigned	AAA/Stable/P1
Islamic Commercial Papers Programme and Islamic Medium-  Term Notes Programme with a combined aggregate nominal  value of up to RM2 billion (2011/2026)	Reaffirmed	AAA/Stable/P1
Hijrah Pertama Berhad
RM2,925 million Islamic Stapled Income Securities (2007/2018)  (“ISIS”)	Reaffirmed	AAA/Stable

Note: We highlight that the credit strength of Hijrah Pertama’s ISIS reflects that of TM’s as the latter has provided a unilateral irrevocable purchase undertaking to repurchase HP’s network assets on their respective maturity dates.

Based on RAM’s rating methodology on government-linked entities, there is a high likelihood of extraordinary government support for the Group. The Malaysian Government’s involvement in TM is manifested through its 68.6%-stake in the Group via various agencies, ownership of a Special Rights Redeemable Preference Share and 33% representation on its board.

TM’s ratings are anchored by the Group’s dominant position in the domestic fixed-line telephony sector, commanding 98% of the nation’s subscriber base. In 2008, the Government’s move to assign the nationwide deployment of the high-speed broadband network to TM rendered the Group the sole owner of the infrastructure, further strengthening its position in the fixed-broadband market (capturing 89% of this subscriber base). The Group’s ratings are also supported by its healthy financial profile, which is characterised by stable earnings, a steady cashflow-generating ability and moderate balance sheet.

We expect TM’s broadband subscriber base to continue expanding steadily given its reliable connectivity and the nation’s low penetration rate of just 30% for household fixed broadband. However, we also note that the broadband arena is becoming increasingly more competitive amid the aggressive marketing efforts and constant initiatives of providers of wireless broadband services. Despite this, TM continues to enjoy commendable take-up rates for its broadband services, as demonstrated by its performance to date. The Group’s strong broadband growth has in turn strengthened its data revenue, which will continue to skew TM’s top-line mix from voice to non-voice services.

Media contact
Chinthamani Thanneermalai
(603) 7628 1013
chinthamani@ram.com.my