Fitch affirms Etisalat at A+ with a Stable Outlook (UAE)

www.WirelessFederation.com/news: UAE-based state-owned Emirates Telecommunications Corporation’s (Etisalat) Long-term foreign currency Issuer Default Rating (IDR) has been affirmed at ‘A+’ with a Stable Outlook by Fitch Ratings. Fitch’s expectation is reflected in the ratings affirmation that the company’s management will maintain a conservative financial policy, with a maximum gross debt/EBITDA of 2.5x and continue to generate substantial majority of group EBITDA from the local UAE market by 2012-13.

According to Fitch, the company recorded a net cash position over the last five years and that Etisalat’s credit metrics will continue to be strong in the short to mid-term even with possible investment plans in 2010-11 and it sees the free cash flow generation capability of the local UAE business as supporting the company’s international expansion plans in the medium-term.

Government support is also considered integral to the company’s target of becoming a major global telecoms operator by the agency. Fitch’s assessment of the sovereign’s creditworthiness is also reflected in the rating due to Etisalat’s strong operational and strategic ties with the UAE.

With a 215% mobile penetration rate, the Stable Outlook reflects Fitch’s view that the UAE’s mobile telecommunications market is mature now. The company’s international mobile operations in India, Egypt and Nigeria are also expected to provide its major source of expansion. Though entry of a third mobile operator is not expected by Fitch, falling average revenue per user (ARPUs) and operating margins in the local market due to competition has been noted.

Potential downward pressure could be experienced by the rating from any change in the sovereign’s creditworthiness, or evidence of a significant weakening of the parent/subsidiary linkage. Etisalat’s risk profile on a standalone basis would increase if EBITDA derived from the UAE fall below 50% of the consolidated EBITDA or any large debt-financed acquisition is done without governmental financial support. However, Fitch considers this unlikely over the medium-term, and the agency would consider the legal, operational and strategic links before taking any rating action.

The agency’s top-down rating methodology – takes into account the assumed government support in line with Fitch’s criteria report: ‘Parent and Subsidiary Rating Linkage (Fitch’s Approach to Rating Entities within a Corporate Group Structure).