Fitch assesses AIS bid to acquire TTTBB

Fitch Ratings says Advanced Info Service's (AIS) proposed acquisition of fixed broadband operator Triple T Broadband Plc (TTTBB) will drive up AIS's leverage but lower its rating headroom.

The takeover would ultimately support AIS's medium-term revenue growth and earnings stability.

The rating agency viewed that the acquisition is in line with AIS's pursuit of a sustainable competitive position and profitable growth in Thailand's telecom sector amid a slowing mobile business

On July 4 this year, AIS approved the acquisition of a 100% stake in TTTBB and a 19% stake in Jasmine Broadband Internet Infrastructure Fund (JASIF) - the owner of TTTBB's fibre-optic assets - from AcumenCo for total cash consideration of 32.4 billion baht.

The parties aim to complete the transaction by the first quarter of next year. The deal is still subject to shareholder and regulatory approval.

Fitch Ratings expects AIS's revenue contribution from the broadband business to reach around 18% post-acquisition, from 6% at present. The deal will also solidify AIS's market position as Thailand's second-largest fixed broadband operator, raising its broadband market share to 35% from 15% in the first quarter of 2022. This figure is close to the 38% share of the largest operator, True Corporation.

TTTBB will also provide AIS with access to upcountry broadband markets, where AIS has limited network coverage, and enhance its established position in the urban market.

The proposed debt-funded acquisition will increase AIS's net leverage by about 0.4 times, without considering any earnings from the acquired asset.

It is expected that the net debt/Ebitda would reach around 1.4-1.5 times at transaction closing in the first quarter of 2023, from 0.9 times in the first quarter of 2022. This is still below 1.8 times, which is where the rating agency would consider a rating downgrade, although the rating headroom will narrow, according to Fitch Ratings.

The proposed acquisition by AIS follows earlier attempts at consolidation within Thailand's telecom sector, including the merger of mobile rivals Total Access Communication (DTAC) and True.

The deal was driven by a need for scale to support cost efficiencies amid the mobile sector's slow growth and high investment.

Competition in the domestic mobile industry has been challenging over the past few years, as the proliferation of unlimited mobile-data plans has squeezed data yields and slowed industry growth.

As for Thailand's fixed-broadband market, Fitch Ratings expects it to continue to expand in the medium term, as the sector's penetration remains moderate at around 53% of households in 2021.

Industry competition has been more rational than that of the maturing mobile segment over the past few years due to the rising adoption of high-speed broadband services.

 

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Fitch Ratings expects AIS's revenue contribution from the broadband business to reach around 18% post-acquisition.