FCF to Rebound in Asia-Pacific's Telecom Sector in 2010

Fitch Ratings has today said in a just published report that the 2010 outlook for the overall Asia-Pacific telecom sector remains stable. "Most operators will be able to continue to weather any adverse economic conditions and maintain their credit profiles thanks to robust liquidity, relatively low gearing, and strong free cash flow (FCF) generation," says Matt Jamieson, Senior Director and Head of Fitch's Asia Pacific Telecoms Media and Technology team. Although competitive factors look set to drive revenue growth and margins lower in 2010E, curtailed capital expenditure budgets are likely to result in higher FCF generation for the average Asia-Pacific telecom operator.


Fitch expects top-line revenues for the 23 telecom operators it rates across Asia Pacific to rise by an average of only 2.7% in 2010E, which, although up from the prior year, is well below 2008's 7.7%. "Whereas average revenue growth has historically remained above GDP growth, the sector appears to have reached an inflexion point in 2009 - with average revenue growth below the weighted average Asia-Pacific country GDP growth of 1.9%," adds Mr. Jamieson. "While the economic downturn may play a small part, rising penetration levels and tariff-discounting in emerging markets, including China India, Indonesia and Thailand, are the more important factors keeping a lid on the average telecom operator's revenue growth in 2010," adds Mr. Jamieson.

The average EBITDA margin for Asia-Pacific telecom operators is estimated to have fallen to 38.9% in 2009E from 40.2% in 2008, and the agency anticipates that ongoing competitive pressures will result in a further decline to 38.0% in 2010E. Cash flow from operations (CFO) remains strong; and with aggregate capex likely to fall (particularly in Australia, China, India and Indonesia), the agency expects a 61% increase in aggregate FCF generation during 2010. However the agency forecasts the median operator among the 23 to generate slightly negative FCF; and, in conjunction with falling EBITDA margins, Fitch feels that the median leverage ratio (as measured by adjusted net debt/EBITDAR) will actually increase to 1.7x (2009: 1.5x).

While credit metrics may deteriorate slightly in 2010, Fitch believes that, in general, most operators' financial profiles will remain comfortable for their current rating levels.

The report, entitled "Asia Pacific Telecoms Credit Outlook 2010", is now available on the agency's website, www.fitchratings.com. The report also contains 11 one-page country summary outlooks covering the major credit issues for the agency's rated telecom issuers across the region.