Fitch Ratings: Telcos# Short Reprieve from Thailand#s 900MHz Payment Delay

Stocks and Financial Services Press Releases Friday April 12, 2019 16:28
Bangkok--12 Apr--Fitch Ratings

The Thai government's approval to delay telcos' payments for the 900MHz spectrum will ease immediate cash flow pressure for Advanced Info Service Public Company Limited (AIS; BBB+/AA+(tha)/Stable) and Total Access Communication Public Company Limited (DTAC; BBB/AA(tha)/Stable) to allow them to participate in the upcoming 700MHz spectrum allocation, says Fitch Ratings.

The government's plan to split the upfront licence fee for the 900MHz spectrum over several instalments will relieve some cash flow pressure amid rising capex. However, the telcos will have to acquire 700MHz spectrum in the pending spectrum assignment as a key condition for the payment extension. The National Council of Peace and Order issued the measure on spectrum payment extension on 11 April 2019.

Fitch expects the new payment schedule will ease rating headroom for AIS and DTAC, as their largest spectrum payments were originally scheduled for 2020 and 2022, respectively. An agreement to apply for the new spectrum payment term could reduce AIS's projected funds from operations (FFO) adjusted net leverage by around 0.5x to 1.4x in 2020, while that of DTAC's could be lowered by around 0.4x to 2.3x in 2022. Fitch has negative triggers of 2.0x for AIS and 2.5x DTAC.

Under the 900MHz payment extension term, AIS's remaining spectrum payments for 900MHz of THB64 billion could be spread out equally at around THB10.6 billion a year over 2020-2025, from the previous THB4.0 billion in 2019 and THB60 billion in 2020. Meanwhile, DTAC will be paying around THB3.7 billion a year over 2020-2027, compared with the former payment schedule of THB2.0 billion a year in 2020-2021 and a lump-sum of THB25.8 billion in 2022.

Investments in 5G have been selective, with only a handful of 5G trials taking place in the Asia-Pacific region, underscoring the unproven business case for 5G and limited device availability. Fitch believes that the 4G technology should be sufficient to support Thailand's growing demand for mobile data in the medium term. The uncertain business case for 5G investment in the absence of a complete ecosystem will widen negative free cash flow and weigh down telcos' balance sheets. The regulator has yet to announce details on the 700MHz spectrum allocation.

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