Fitch Ratings has said in a just published report, "Asia Pacific Telecoms: Credit Outlook 2009", that notwithstanding the impact of the current recessionary environment, the overall Outlook is Stable, and most operators are well-placed to defend their credit profiles. The report explores how key financial metrics will move for each of the operators across Asia Pacific in 2009 and conclude that while revenue growth is likely to slow, cash flow from operations (CFO) and free cash flow (FCF) after dividends are likely to, on average, moderately rise.

"Out of 24 issuers the agency rates in the region,19 bear a Stable Outlook, and although the sector is far from being immune to the effects of the global economic recession, the operators will be able to weather the slowdown and maintain their credit profiles in 2009 given their robust liquidity positions, low gearing levels, strong FCF generation, flexibility to reduce costs and a lower sensitivity to changes in GDP growth compared with other sectors," notes Matt Jamieson, Senior Director and Head of Fitch's Asia Pacific Telecommunications, Media and Technology team. "The caution though is that while telecom operators proved to be relatively resilient during previous economic downturns, the impact of the recession will be felt harder this time round," adds Mr. Jamieson.

For the 23 operators across Asia-Pacific for which Fitch maintains current financial forecasts, the agency expects revenue growth to slow for 16 operators, with overall revenue growth falling to 5.0% in 2009 from 8.1% in 2008. This may look optimistic, particularly in comparison to Fitch's weighted average GDP growth forecast of only 0.8% for the 13 countries the 23 operators are domiciled in (down from 4.1% in 2008). However, Fitch expects ongoing subscriber growth, albeit at lower levels than in 2008, to yield more than 10% revenue growth in China and India, and to a lesser extent in Indonesia.

Fitch expects small, but positive, revenue growth with stable margins to nudge the average Asia-Pacific operators' CFO up by 7% in 2009. In turn, Fitch expects falling capital expenditure and stable dividends across the region to result in positive growth in FCF for 2009, although the agency expects FCF to fall for seven out of the 23 operators.

Expected maintenance of low leverage levels in 2009 suggests that potential negative rating actions may be minimal, particularly given that the operators currently have significant rating headroom.

For the most part, financial flexibility and liquidity for the Asia-Pacific telecoms sector remains solid, as most operators in the region maintain healthy cash flows and strong credit profiles. Combined with minor refinancing risk over the rest of 2009, Fitch is confident of the ability of the operators covered in this report to fund maturing obligations, albeit at a much higher cost.

Fitch believes that there is potential for an uptick in M&A activity during 2009 given that asset values are trending downwards. China Mobile and SingTel are considered the most likely acquirers amongst Asian telcos; however, there may also be interest from Middle Eastern and European operators. Interest remains focused on the higher-growth emerging markets such as India and Indonesia. Both markets are highly fragmented, and difficult credit market conditions could force consolidation amongst some of the newer entrants.