The debentures, which will total up to THB15bn, will be issued in two tranches due in 2023 and 2026. The proceeds from the debentures will be used to fund capex and/or working capital. The debentures are rated at the same level as AWN's National Long-Term Rating of 'AA+(tha)' as they constitute direct, unsecured, unconditional and unsubordinated obligations of the company.
KEY RATING DRIVERS
Rating Equalised with AIS: The ratings of AWN are equalised with those of its parent, Advanced Info Service Public Company Limited (AIS; AA+(tha)/ Stable), to reflect the strong links between AWN and AIS, in line with Fitch's Parent and Subsidiary Rating Linkage criteria.
AIS, Thailand's leading mobile telco operator, owns 100% of AWN and fully controls the subsidiary's management and operations. AWN was awarded a 2.1GHz 3G licence in 2012 and 1.8GHz 4G licence in 2015, and is of strategic importance to its parent as the operator of AIS's licensed business. AWN accounted for over 75% and 90% of AIS's group revenue and EBITDA, respectively, in 2015.
Strong Data Growth: AIS will continue to benefit from an increase in data usage due to its superior network quality. The company has heavily invested in its 3G network over the past two years. It started to roll out its 4G network in December 2015, which strengthened its data service quality. Its non-voice revenue grew strongly, faster than the industry's average expansion over the past two years. The robust growth in non-voice should help offset the continued decline in voice service revenue in the medium term.
Weaker 2016 Earnings: Fitch expects AIS's operating EBITDAR to decline by 17% to around THB60bn in 2016. The decline would be mainly a result of the potential one-off expenses relating to the shutdown of its 2G, 900MHz network after the company failed to secure the 900MHz spectrum in an auction in December 2015. AIS will need to offer handset subsidies to its 2G customers to encourage them to move to its 3G network before the 2G network is shut on 14 April 2016. The company estimates it will cost about THB8bn in 2016 to provide the handset subsidies and continued roaming service to the 2G users.
Smaller Rating Headroom: Fitch estimates that AIS's funds flow from operation (FFO)-adjusted net leverage will in 2016 slightly exceed the 1.5x guideline at which we will consider taking negative rating action. This will be due largely to lower earnings. However, we expect FFO-adjusted net leverage to fall to below 1.5x in 2017 due to cash flow improvements after the one-off handset subsidies and roaming costs. Fitch may still take negative rating action if leverage remains above 1.5x for a protracted period because earnings do not recover as expected or debt rises. At end-2015, AIS's FFO-adjusted net leverage remained low at 1.0x.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for AWN include:
- Low single-digit revenue growth from 2016 onwards
- Operating EBITDAR margin of 35%-40% in 2016 and 2017
- Capex for network investment of around THB35bn-40bn in 2016 and 2017
- 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
For the rating of AIS, the following sensitivities were outlined by Fitch in its Rating Action Commentary of 27 October 2015.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- Sustained positive free cash flow
- Operating EBITDAR margin remaining above 45% on sustained basis (2015: 46.6%)
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- An increase in FFO-adjusted net leverage above 1.5x on a sustained basis (2015: 1.0x)
- Unfavourable regulatory changes