The RWN reflects a risk that, should the merged entity of Gulf Energy Development Public Company Limited and AIS's major shareholder, Intouch Holdings Public Company Limited, gain majority control of AIS, the significantly weaker credit profile of the controlling shareholder could potentially result in a multi-notch downgrade for AIS. At the moment, Fitch assesses AIS's ratings based on its Standalone Credit Profile (SCP).
Fitch placed all of AIS's and AWN's ratings on RWN on 19 July 2024 following Gulf's announcement that it plans to merge with Intouch and establish a new listed merged entity. Key parties, including Intouch, Gulf and Singapore Telecommunications Limited (Singtel), will make a tender offer for all shares in AIS held by minorities before the merger. We expect to resolve the RWN once the tender offer is completed and the shareholding structure of AIS becomes clear, which could take more than six months.
KEY RATING DRIVERS
Potential Change in Shareholding Structure: The tender offer could result in a significant change to AIS's shareholding structure. Should the new merged entity gain effective control over AIS, Fitch would apply our Parent and Subsidiary Linkage Rating Criteria to assess the linkage between AIS and its weaker parent. We expect to assess the parent's access and control over AIS as either 'porous' or 'open', and legal ringfencing as 'open'. This would result in AIS's ratings being constrained to the consolidated profile of the parent or one notch higher, which could lead to a multi-notch downgrade of AIS.
Weaker Controlling Entity: We believe the merged entity would have a weaker credit profile than AIS's SCP. We expect the merged entity's pro forma EBITDA net leverage - including the full consolidation of AIS and debt raised to fund the tender offer - to be around 4x-5x, which is significantly higher than AIS's current leverage of around 1.5x. However, the consolidation of Intouch and AIS into the merged entity will provide diversified cash flow covering both the telecom and power businesses.
Strong SCP of AIS: AIS's SCP continues to reflect its strong market position in mobile business with around 49% revenue market share. The recent acquisition of Thailand's second-largest broadband operator, Triple T Broadband Public Company Limited, has enabled AIS to diversify its revenue to non-mobile services, strengthening its market position and supporting medium-term revenue growth and earnings stability. Fitch expects AIS to maintain a solid financial profile with EBITDA net leverage of around 1.2x in the medium term (2023: 1.5x).
Improving Earnings: We expect AIS's EBITDA to rise to about THB85 billion per annum in 2024 and 2025 (2023: THB76.9 billion), driven by a consolidation of Triple T Broadband and a recovery in ARPU. We expect the competition to remain benign in 2025. Operators are now focusing on profitability rather than market share gain, with unlimited data packages being offered only to specific customer segments.
The merger of True Corporation Public Company Limited and Total Access Communication Public Company Limited in early 2023 has led to healthier growth in Thailand's mobile industry. This resulting duopoly allows for more sustainable and rational price competition.
Ratings Equalised: The ratings of AIS and AWN are equalised, reflecting AIS's 'High' strategic and operational incentives and 'Weak' legal incentive to support its mobile subsidiary, in line with Fitch's Parent and Subsidiary Linkage Rating Criteria. This is underpinned by substantial contributions from AWN's mobile and broadband businesses, which accounted for 93% of group revenue and 85% of EBITDA in 2023.
We view the management and brand overlap as 'High'. AIS fully owns AWN, allowing it to control AWN's strategy, financial policy and investments, and use a common AIS brand for products sold across its mobile, broadband and content businesses.
DERIVATION SUMMARY
AIS's credit profile is stronger than that of Thai Beverage Public Company Limited (AA(tha)/Stable), Thailand's largest beverage producer with a strong market position in spirits and a leading share of beer sales in its key markets of Thailand, Vietnam and Myanmar. Both have comparable business profiles as industry leaders. AIS has narrower geographical diversification, but its National Long-Term Rating is two notches higher due to lower financial risk.
AIS's National Long-Term Rating is at the same level as that of PTT Public Company Limited (AAA(tha)/Stable), Thailand's largest fully integrated oil and gas company. AIS has a slightly weaker business profile, and PTT's business is larger and more diversified, offsetting the volatility of its individual business segments. However, AIS's telecom business is more stable and the company has a conservative financial profile with EBITDA net leverage of 1.2x-1.5x, compared with 1.7x-2.0x for PTT.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
- Service revenue growth of around 15% a year in 2024 and 2% in 2025, reflecting the consolidation of Triple T Broadband and ARPU improvement.
- Operating EBITDA margin of around 40%-41% in 2024 and 2025.
- THB25.5 billion in capex in 2024 and THB30.0 billion in 2025 (2023: THB37.1 billion).
- 95% dividend payout ratio.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
- Fitch may downgrade the ratings of AIS if the tender offer results in the merged entity gaining majority control of AIS. The final rating will depend on our assessment of the access and control the weaker parent has over AIS under our Parent and Subsidiary Linkage Rating Criteria
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
- Fitch may remove the RWN and affirm the ratings if the tender offer falls through or if the newly merged entity fails to gain a majority stake in AIS.
LIQUIDITY AND DEBT STRUCTURE
AIS's liquidity was manageable with THB55 billion in debt maturing over the next 12 months from end-September 2024, THB37 billion of which is the bridge loan to support the acquisition of Triple T Broadband. It also had a 19% share in Jasmine Broadband Internet Infrastructure Fund (currently 3BB Inter Instructure Fund) in 2023. AIS partially refinanced the bridge loan with THB25 billion debentures in November 2024.
The remaining maturity of THB18 billion will be supported by a cash balance of THB13 billion at end-September 2024 and its robust operating cash flow. Its liquidity is enhanced further by its strong ability to access the domestic debt capital market, given its strong credit profile.
ISSUER PROFILE
AIS, Thailand's largest mobile-phone operator, has a 49% service revenue market share. It also offers fixed-broadband services nationwide with 4.94 million subscribers, accounting for around 46% of the subscriber market. Intouch and Singtel are major shareholders with stakes of 40% and 23%, respectively.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
AWN's ratings are equalised with AIS's ratings.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.
Additional information is available on www.fitchratings.com
Source: Fitch Ratings