KUALA LUMPUR (Dec 11): Moody's Investors Service (Moody's) has affirmed Axiata Group Bhd's Baa2 issuer rating and baa3 baseline credit assessment (BCA).

The rating agency said it has also affirmed the provisional (P) Baa2 senior unsecured ratings on the sukuk issuance programme established by Axiata SPV2 Bhd and the medium-term note programme established by Axiata SPV5 (Labuan) Ltd, as well as the Baa2 rating on all backed senior unsecured notes issued by the two entities, which are wholly owned subsidiaries of Axiata.

Moody's has also maintained the stable outlook on all ratings.

Moody's vice-president and senior credit officer Nidhi Dhruv said the affirmation of Axiata's ratings reflects the company's strong market positions in all its operating markets and Moody's expectation that its leverage will trend below 3.0 times by 2025, as Axiata continues to use excess cash from the sale of its stakes in subsidiaries to pare down debt.

"The rating also incorporates Axiata's increasingly complex group structure, given the deconsolidation of Celcom and the proposed deconsolidation of edotco.

“The changes in group structure also elevate Axiata's exposure to frontier market risks, which now account for over 35% of consolidated earnings before interest, taxes, depreciation, and amortisation (Ebitda) for the nine months ended Sept 30, 2023," she said in a statement on Monday.

Dhruv, who is also Moody's lead analyst for Axiata, said the rating agency expects Axiata's revenue to grow 5% to 6% on a constant currency basis over the years ending Dec 31, 2024 and 2025, and Ebitda margin to remain at 45% to 46% over the next two years supported by improving cost controls and efficiencies mainly at PT XL Axiata Tbk (Baa3 stable) and Dialog.

"Nonetheless, operations in Axiata's core markets remain under pressure due to ongoing competition,” she added.

Moody's could upgrade the ratings if Axiata's fundamental credit profile continues to strengthen, with consolidated adjusted debt/Ebitda below 2.0 times and retained cash flow/debt above 35% on a sustained basis.

Moody's could downgrade the ratings if Axiata's exposure to frontier markets continues to increase or dividends from CelcomDigi Bhd are not sufficient to maintain its credit quality.

"Any reduction in the support assessment incorporated in the ratings could also put downward pressure on the ratings," it said.

Axiata is one of Asia's largest regional cellular telecommunications providers with about 174 million subscribers across 11 countries.

The company's key mobile operating subsidiaries include XL Axiata Tbk in Indonesia (66.53% stake), Robi Axiata Ltd in Bangladesh (61.8%), Dialog Axiata plc in Sri Lanka (82.27%) and Smart Axiata Company Ltd in Cambodia (72.5%).

Axiata has a 33.1% stake in Malaysia's largest mobile operator CelcomDigi and holds a 63% stake in edotco Group Sdn Bhd, its regional tower subsidiary that owns a portfolio of around 34,200 towers in South and Southeast Asia.

Axiata demerged from Telekom Malaysia Bhd (A3 stable) in April 2008. As at Nov 30, 2023, the company was approximately 72% directly and indirectly owned by entities related to the Malaysian government, including a 36.73% stake held by Khazanah Nasional Bhd (A3 stable).