Fitch Affirms Advanced Wireless Network’s Ratings at AA+(tha)’

Thursday 29 October 2015 10:54
Fitch Ratings has affirmed Advanced Wireless Network Company Limited's (AWN) National Long-Term rating at 'AA+(tha)' with Stable Outlook, National Short-Term rating at 'F1+(tha)', and National senior unsecured rating at 'AA+(tha)'.

KEY RATING DRIVERS

Rating Equalised with AIS: The ratings of AWN are equalised with its parent, Advanced Info Service Public Company Limited (AIS; AA+(tha)/Stable/F1+(tha)), to reflect the strong links between AWN and AIS, as per Fitch's Parent and Subsidiary Linkage criteria.

AIS owns 100% of AWN and fully controls the subsidiary's management and operations. AWN was awarded a 3G licence in Thailand in 2012, and is clearly of strategic importance to its parent. AWN is being used as a vehicle to migrate AIS's business and subscribers from the 2G concession scheme to the more transparent 3G licence system. AIS has provided substantial support to AWN, including personnel and assistance in operations and network development, which helps mitigate execution risk of the 3G rollout.

Major Contribution from AWN: Fitch expects AWN to be a major revenue and EBITDA contributor to AIS, accounting for over 75% and 90%, respectively, after 2015. In the long run, AWN will become the principal constituent of AIS's business once the majority of subscribers have migrated to 3G.

Weaker Standalone Credit Profile: AWN's standalone credit profile will remain weaker than that of AIS in the medium term. A key constraint is AWN's higher financial leverage. Fitch expects AWN's funds flow from operations (FFO)-adjusted net leverage ratio to stay around 3.0x-3.5x in the medium term, compared with AIS's consolidated leverage of below 1.5x.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for AWN include:

- Strong revenue growth in 2015 as more subscribers migrate to 3G networks, and mid-single-digit growth from 2016 onwards

- operating EBITDAR margin of 35%-40% in 2015 and 2016

- Capex for network investment of around THB30bn a year in 2015 and 2016

- Acquisition of new spectrum (900MHz and 1.8GHz) in 2015

- 100% dividend payout ratio

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

-An upgrade of AIS's ratings

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

-A downgrade of AIS's ratings

-Weakening in links between AIS and AWN, including a reduction of AIS's stake in AWN

LIQUIDITY

Healthy Liquidity: AWN's liquidity profile improved after it issued debentures in 2014 to refinance its short-term debt. At end-1H15, AWN had no short-term debt. The first maturity of these debentures will be in 2017. AWN's liquidity should also be supported by its ability to access local debt markets.

FULL LIST OF RATING ACTIONS

Advanced Wireless Network Company Limited

National Long-Term rating affirmed at 'AA+(tha)'; Outlook Stable

National Short-Term rating affirmed at 'F1+(tha)'

National senior unsecured rating affirmed at 'AA+(tha)'.