KUALA LUMPUR (Nov 28): Axiata Group Bhd’s earnings quality is set to erode as the merger between its Malaysian operations (Celcom Axiata Bhd.) and that of Telenor ASA (A-/Stable/A-2) nears completion, said S&P Global Ratings.

In a statement on Nov 25, the rating agency said that at the same time, Axiata’ss recent spate of acquisitions will push its debt to Ebitda to 2.7x-2.8x in 2023, from 2.2x in 2021.

It said that together, these factors result in a weakened credit profile for the Malaysia-based telecommunications operator.

S&P Global lowered its long-term issuer credit rating on Axiata to ‘BBB’ from ‘BBB+’.

“We also lowered the long-term issue ratings on the company‘s senior unsecured notes and sukuk to ‘BBB‘.

“We removed the ratings from CreditWatch, where we had placed them with negative implications on April 22, 2022,” it said.

S&P Global said the stable outlook reflects the expectation that Axiata will maintain a broadly stable operating performance and manage its leverage such that its debt-to-Editda ratio will remain between 2x-3x over the next 24 months.

The agency said Axiata could maintain a higher leverage tolerance to seize further inorganic growth opportunities, which it has generally leaned more on debt to fund.

It said Axiata is seeking to grow its enterprise segment capabilities to capture the growth brought about by digitalisation.

Tower subsidiary edotco is also looking to grow its portfolio to 70,000 towers, from over 54,000 currently, it said.

“In our view, Axiata’s plans to list edotco eventually or to introduce an equity partner to co-fund the PLDT towers acquisition could ease the leverage pressure.

“However, the timing of such plans remains uncertain. The listing plan remains challenging because of edotco’s presence in Myanmar, where significant political uncertainties remain,” it said.