Fitch Ratings has confirmed Kazakhtelecom's (Kaztel) Long-Term Issuer Default Rating (IDR) at 'BBB-' with a Stable Outlook, citing the company's dominant market positions, rational market structure, and strong financial profile. The assessment includes a 'bottom-up plus one' approach to Kaztel's Standalone Credit Profile (SCP), capped at the 'government minus one' notch.
Key Points:
Market-Leading Positions: Kaztel boasts a 93% subscriber market share in fixed voice, 64% in fixed broadband, 58% in mobile, and 34% in pay-TV services, accounting for over 60% of the total telecom market revenue in Kazakhstan.
Strategic Investments: Fitch anticipates a rise in Kaztel's cash capital expenditure to 58% of revenues in 2023 and 25% in 2024, driven by 5G spectrum acquisition, infrastructure upgrades, and digital platform investments. The company's mobile subsidiaries, Kcell and MTS, acquired frequencies for KZT 156bn ($338.2mn), planning to deploy over 7,000 5G base stations by 2027.
Temporary Negative FCF: High capex, increased interest payments, and dividends are expected to impact Kaztel's free cash flow negatively in 2023-2024. However, a return to positive FCF is anticipated from 2025 onwards, driven by rising EBITDA and reduced capex requirements.
Steady Rating Headroom: Forecasted EBITDA net leverage of 0.8x in 2023-2024, comfortably below the downgrade threshold of 2.1x, provides significant rating headroom.
Evolving Regulatory Environment: Changes in Kazakhstan's regulatory landscape, including the entry of a fourth mobile operator and potential sales of existing operators, pose challenges. Another 5G auction by 2024 could escalate capex, impacting the financial profile.
Government Support: Majority state ownership (79.2%) positions Kaztel as a preferred telecom services provider to government entities, ensuring 'Moderate' support from the state.
Competitive Pressures Easing: Despite losing market share in 2021, competitive pressures have eased in 2022-2023, marked by tariff increases and the absence of unlimited data packages.
Liquidity and Debt Structure: Kaztel's short-to-medium-term liquidity is deemed comfortable, supported by cash reserves, investments, and unused revolver lines, covering debt maturities until end-2025.
A significant increase in support from the government (in the form of debt guarantees) or incentives to support would lead to a positive rating action for Kaztel, provided its SCP remains at 'bbb-' and Kazakhstan's rating at 'BBB'.
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