KUALA LUMPUR (Dec 13): Moody’s Investors Service has affirmed Telekom Malaysia Bhd (TM)’s A3 issuer and senior unsecured rating, as well as the (P) A3 rating on TM’s wholly-owned finance subsidiary Tulip Maple Bhd’s US$750 million senior unsecured multi-currency sukuk issuance programme.
The outlook on both ratings is stable, the rating agency said in a statement, adding it has also affirmed TM's Baseline Credit Assessment (BCA) of baa1.
Moody’s said TM’s A3 rating incorporates the group’s BCA of “baa1” and the expected extraordinary support from the government.
"TM saw a turnaround in revenues across all its business segments since 4Q20, as consumer data consumption and bandwidth demand from other telecom providers rose amid the pandemic, leading to an acceleration in TM’s data and lease segment," said Nidhi Dhruv, a Moody's vice president and senior analyst.
According to Moody’s, the “baa1” BCA “reflects TM’s position as the leading provider of fixed-line services and the largest broadband telecommunications service provider in Malaysia, as well as its relatively strong cash flow, sound debt maturity profile and balanced liquidity needs.
The rating agency expects TM to grow its revenues by 3% to 3.5% for the year ended Dec 31, 2022 (FY22) and around 2.5% in FY23, which follows the decline in revenue since FY19, amid declining voice usage and revenues, regulatory restrictions on broadband pricing, and a more competitive operating environment.
TM's revenues will further benefit from its impending contract with Digital National Bhd (DNB) for the provision of 5G services under a Single Wholesale Network (SWN) in Malaysia, said Moody’s.
Under the contract, TM will lease its fiber network to DNB, which will be further leased by DNB to all telcos in Malaysia on a cost-plus margin basis.
"Telekom Malaysia has also reduced its leverage to 1.8x for FY21, from 2.6x in December 2019 and 2.3x in December 2020, as the company repaid its RM2.0 billion in debt during 1QFY21. Its revenue and EBITDA also benefited from an unprecedented increase in broadband subscribers during the nine months ended September 2021," Dhruv added.
Meanwhile, Moody’s said TM’s liquidity is excellent, as it has “a well-laddered debt maturity profile and with around half of its borrowings (excluding leases) maturing after 2025.”
It noted that the group does not have plans to raise new debt over the next one to two years, and should have sufficient cash to repay upcoming debt maturities while also considering to prepay RM500 million to RM1 billion of debt in 2022.
The rating agency said it will consider a downgrade of TM’s rating if the group’s “BCA weakens because of an erosion of its dominant market positions, a significant decline in its telecommunications revenue, or a significant increase in or acceleration of investments in government-related projects”, as well as any changes in Malaysia’s sovereign ratings and changes in the relationship between TM and the government.
“Key indicators indicative of a weakening operating profile include muted revenue growth, adjusted debt/EBITDA above 2.8x, or adjusted retained cash flow/debt falling below 20%-25% on a sustained basis,” the agency said.
TM’s share price closed 12 sen or 2.30% higher at RM5.33 on Monday (Dec 13), valuing the telecommunications group at RM20.11 billion.