RAM Ratings assigns AAA/Stable/P1 ratings to Telekom's proposed sukuk
Published on 22 Oct 2018.
RAM Ratings has assigned AAA/Stable/P1 ratings to Telekom Malaysia Berhad's (TM or the Group) proposed Islamic MTN Programme and Islamic CP Programme with a combined aggregate nominal value of up to RM4 billion (the Proposed Sukuk). The ratings are anchored by the Group's dominance in fixed-broadband and fixed-line telecommunications, coupled with its critical function and strong relationship with the Government of Malaysia (GoM). TM is considered an integral part of the development of the domestic fixed-broadband platform vis-à-vis propelling Malaysia towards achieving its digital economy goals. These factors are expected to preserve TM's long-term credit profile. On that note, any significant change in TM's role and relationship with the GoM may affect the ratings. Among other things, the proceeds from the Proposed Sukuk will be deployed towards the capital expenditure and business operating requirements of TM and its subsidiaries, which shall be Shariah-compliant.
In the past, competition and the prospects of a price war within the broadband space had been relatively benign, as TM's strong market share and near-monopoly had enabled it to significantly influence the prices of its offerings. This had translated into more premium pricing and lower-speed offerings compared to the other players in this region. On 1 January 2018, the implementation of the revised Mandatory Standard on Access Pricing (MSAP), which sets a ceiling on the rates that TM can charge access seekers, triggered a move towards market-based pricing. With piling pressure from other fixed-broadband providers, industry-wide broadband subscription prices have been slashed for up to 65%, more than 25% markdown as per Malaysian Communications and Multimedia Commission's (MCMC) guidance in June 2018.
In a bid to stave off any loss of market share, we expect the potential price war and keen competition to affect TM's business franchise and financial strength in the near to medium term. Our analysis indicates that the Group's debt-servicing aptitude may gradually deteriorate, with its funds from operations debt coverage (FFODC) is envisage to erode to 0.21 times while posting a peak gearing ratio of 1.60 times over the next two to three years (FY Dec 2017: 0.44 and 1.10 times). Meanwhile, the emergence of a new player in fixed telecommunication infrastructure - Tenaga Nasional Berhad - may threaten TM's position as the sole owner and operator of Malaysia's fibre network, although the immediate risks are deemed contained by the lengthy gestation period needed to lay out the fibres.
RAM has also reaffirmed existing programmes by TM and Hijrah Pertama Berhad (wholly-owned subsidiary of TM). For further details, please refer to the rating rationale published by RAM Ratings in June 2018.
(603) 7628 1040
(603) 7628 1162