Moody's sees stable ratings for Asia Pacific telecom operators

Telecom operators in the Asia Pacific face a stable ratings outlook over the next 12 months as cash flow generation remains strong and debt levels fall, Moody's Investors Service said Tuesday.
The region's telecom operators main challenge will lie in having to identify new sources of income growth to make up for declines in the fixed-line business segment, the US risk evaluator said in its outlook for the sector.
"The ratings outlook for integrated and fixed lined telecommunications carriers in the Asia Pacific over the next 12 months is stable, while that for cellular carriers is positive," Moody's Investors Service said.
"Various carriers are now comfortable with their financial profiles and hence our conclusion that the rate of debt reduction may fall in the coming 12 months. "They are also self-funding, exhibiting enhanced cash flows and debt which has been reduced to sustainable levels."
Moody's however pointed out the risk profiles of the respective telecom operators may increase in the future as they scout for new prospects in new markets that offer high growth but will require investment outlays. "Whether this pressures ratings depends on the relevant amounts, financing structures, degree to which operating incomes rise or fall, and the extent to which cash flow and interest coverage change," said Moody's Investors Service.
"As the pressure to maintain or increase margins continues, along with demand for capital by emerging market operators, Moody's would view with caution any opportunistic M and A (mergers and acquisitions) activity that may occur."
While cautious over any M and A activity, Moody's noted the key telecom operators such as Singapore Telecommunications, South Korea's top mobile carrier SK Telecom and China Mobile boast sufficiently strong cash flows to support ongoing investments without affecting their credit profiles. For cellular operators, growth will be strongest in markets such as Indonesia, Thailand, Malaysia and China where "demand for cellular products continues almost unabated," said Moody's Investors Service. China Mobile alone is expected to have signed up more than 23 million new users in the first-half of 2006, it said.