Fitch Ratings: Telcos Worldwide to Ramp Up 5G Capex, Raising Pressure on Credit Profiles

(The following statement was released by the rating agency) Fitch Ratings-Singapore/London-14 September 2020: Higher 5G spending in 2021-2022 and the tough economic environment delaying economic returns are likely to increase pressure on credit metrics for most telecommunications operators worldwide, says Fitch Ratings. The pandemic effects on 5G rollout are likely to be short-lived, leading to a resumption of 5G-related investments in 2021. We expect operating cash flow to lag 5G investments significantly, keeping free cash flow constrained over the next three years. Policy shifts to restrict the deployment of Chinese 5G equipment will raise investment and procurement uncertainties in markets heavily reliant on Huawei Technologies Co., Ltd. and ZTE (HK:0763) Corporation. Fitch's forecasts include staggered 5G capex and spectrum cost as these become certain, with low visibility on returns during the rating horizon. Fitch expects a stable rating trajectory for most of the companies in our global telecom portfolio, but rating headroom is narrowing amid ongoing competitive pressures on EBITDA, high capex investments, and spectrum auctions. Nearly half of our 90 publicly rated companies (excluding tower companies) have low rating headroom, underlining the importance of prudent capital management through staggered investments, dividend cuts, and non-core asset sales to preserve balance-sheet strength. Rating pressure is more pronounced in the Asia-Pacific; around two-thirds of the companies have low rating headroom, giving them more limited organic deleveraging capacity than those in other regions. Only a third of the companies in EMEA and Latin America have low rating headroom. However, deleveraging prospects in EMEA are constrained over the next two years. We expect Latin America to remain a 5G laggard, underscoring a lower capex risk, although the large forex exposure and sovereign risks will continue to drive ratings. The report, "5G Investment Upcycle in Global Telecoms", is available at www.fitchratings.com or by clicking the link in this media release. Contact: Janice Chong Director +65 6796 7241 Fitch Ratings Singapore Pte Ltd. One Raffles Quay South Tower #22-11 Singapore 048583 Damien Chew Senior Director +44 20 3530 1424 Media Relations: Adrian Simpson, London, Tel: +44 20 3530 1010, Email: adrian.simpson@thefitchgroup.com Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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