KUALA LUMPUR (Sept 25): Moody’s Ratings has affirmed Axiata Group Bhd’s (KL:AXIATA) Baa2 issuer rating and baa3 baseline credit assessment, with a stable outlook, citing the telecommunications group’s diversified portfolio and resilient earnings.

Axiata’s portfolio spans South and Southeast Asia, with controlling stakes in Robi Axiata in Bangladesh, Dialog Axiata in Sri Lanka and Smart Axiata in Cambodia, as well as joint-control investments in CelcomDigi Bhd (KL:CDB) in Malaysia and XLSMART Telecom Sejahtera Tbk in Indonesia.

The portfolio provides geographic diversity and resilient earnings, while dividends from its operating companies support debt servicing at the holding company, Moody’s said in a statement on Thursday.

CelcomDigi, which contributes about 10% of Axiata’s earnings, is expected to account for around 40% of dividends received by the holding company over the next few years. Dividend contributions from Dialog, Smart and Robi are also becoming more stable as their profitability and cash generation improve, Moody’s said.

Moody’s senior vice-president Kaustubh Chaubal said the rating affirmation reflects Axiata’s diversified telecommunications portfolio, visible dividends to support holding-company debt service and continued financial discipline.

These strengths are balanced by Axiata’s exposure to emerging and frontier markets, he said.

Moody’s also affirmed the provisional Baa2 senior unsecured ratings on the sukuk issuance programme established by Axiata SPV2 Bhd and the medium-term note programme established by Axiata SPV5 (Labuan) Ltd, as well as the Baa2 rating on senior unsecured notes issued by the two wholly-owned subsidiaries.

Axiata’s revenue is expected to rise to about RM12 billion by December 2028 from RM11.3 billion in 2026, while Ebitda is forecast to increase to about RM6.3 billion, Moody’s said.

Capital expenditure is expected to remain at around RM3.1 billion annually, or 25% to 30% of revenue, while dividend payments are expected to rise in line with management’s commitment to increase dividends per share by at least 10% annually.

As a result, free cash flow is expected to remain modestly negative through 2028, while adjusted debt-to-Ebitda is projected to improve towards 2.6 times by 2028.

Axiata has also identified Link Net and edotco for potential divestment. Moody’s expects part of the proceeds to be used to reduce debt, which would accelerate the improvement in leverage.

Moody’s assessed Axiata’s consolidated liquidity as inadequate over the next 12 to 18 months, saying its cash balance, expected operating cash flow and committed undrawn credit facilities would not fully cover capital expenditure, debt maturities and dividends through December 2027.

The shortfall is mainly due to Axiata’s RM2 billion bridge loans due in March 2027 and edotco’s RM600 million sukuk maturity in September 2027.

Excluding these maturities, Axiata has sufficient cash sources to meet ongoing holding-company and consolidated cash requirements, including interest payments, Moody’s said.

The stable outlook reflects expectations that dividends from CelcomDigi will remain stable while contributions from overseas subsidiaries increase.

Moody’s said the rating could be upgraded if Axiata’s adjusted debt-to-Ebitda falls below 2.0 times and retained cash flow-to-debt exceeds 35% on a sustained basis.

It added that the rating could come under pressure if exposure to frontier markets increases, dividends from CelcomDigi and XLSMART become insufficient to cover holding-company interest payments, competition weighs on margins, or the group takes on more debt or increases shareholder returns.