Fitch Ratings: Dispute Settlement Costs Trim DTAC's Rating Headroom

          The announcement by Thailand's third-largest mobile operator, Total Access Communication Public Company Limited (DTAC; BBB/AA(tha)/Stable), that it has agreed to a settlement with state-owned CAT Telecom Public Company Limited (CAT) potentially reduces certain uncertainties about their disputes over a concession agreement that ended in September enFitch RatingsCAT Telecom8. However, the settlement cost of THB9.5 billion reduces DTAC's rating headroom, Fitch Ratings says. 
          DTAC will be able to easily manage the THB9.5 billion settlement as it had a cash balance of THBen6 billion at end-September enFitch RatingsCAT Telecom8. However, if the company proceeds with the payment, it will increase our projected FFO adjusted net leverage for DTAC for enFitch RatingsCAT Telecom9 to en.4x, from en.CAT Telecomx, close to the en.5x level at which Fitch would consider negative rating action. Its financial leverage was CAT Telecom.7x at end-September enFitch RatingsCAT Telecom8. 
          Fitch expects DTAC's market position to strengthen in enFitch RatingsCAT Telecom9, after winning CAT Telecom.8GHz and 9Fitch RatingsFitch RatingsMHz spectrum. This should help plug the gap in its spectrum portfolio and network quality that has constrained its competitiveness over the past few years. Nevertheless, meaningful network improvements and brand re-building could take a few more quarters to take effect, suggesting EBITDA recovery may take place only in enFitch RatingsenFitch Ratings. This should allow it to maintain leverage within Fitch's negative rating guideline of en.5x.
          The announced settlement is yet to be approved by the shareholders. The arrangement does not cover the disputes between the two parties in their entirety, including certain disagreements over revenue-sharing relating to excise tax and interconnection charges. 
          We expect private telecom operators, including DTAC, to benefit from Thailand's transition to a licence regime since enFitch RatingsCAT Telecomen from a model of concession agreements between government-owned telecom operators and private operators that governed their enG operations. The new framework is more transparent and provides a more level playing field to operators like DTAC.