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Announcement:

Moody's changes Axiata's outlook to positive

Global Credit Research - 06 Dec 2010

Approximately US$300 million of debt securities affected

Hong Kong, December 06, 2010 -- Moody's Investors Service has today changed to positive from stable the outlook on the Baa2 issuer rating and senior unsecured bond rating of Axiata Group Berhad ("Axiata").

"The change in outlook reflects Axiata's strengthening financial metrics and operating profile, driven by an improved performance across substantially all of its cellular subsidiaries across the region, particularly that of PT XL Axiata Tbk ("XL") which now constitutes its largest non-domestic subsidiary, representing 26% of its subscribers, 39% of revenues, and 46% of reported EBITDA (for YTD September 2010)," says Laura Acres, a Moody's Vice President and Senior Credit Officer.

Axiata's Baa2 rating combines the: (1) company's Baseline Credit Assessment ("BCA") of 10, which is equivalent to the Baa3 level under Moody's Global Rating Scale; and (2) one-notch uplift resulting from parental support that Moody's believes the Government of Malaysia ("GoM" -- rated A3/stable) is likely to provide in a distress situation under the joint default analysis approach, given Axiata's 65% direct ownership by GoM-related entities, including a 43.05% stake held by the Malaysian Government investment arm, Khazanah Nasional Berhad ("Khazanah").

"Axiata's BCA is mainly underpinned by the stable cash flows generated from its wholly-owned subsidiary in Malaysia, Celcom, which enjoys a well established market position, healthy margins and returns, and is currently moderately geared," adds Acres, also Moody's Lead Analyst for the company.

"Despite Axiata's relatively strong financial profile with consolidated adjusted debt/EBITDA of 1.8x, concerns exist regarding emerging market risk, and particularly any changes to the regulatory and political environment in the countries in which Axiata has made material investments," adds Acres.

While subsidiaries largely raise debt on a non-recourse basis, Moody's also remains concerned about the possibility of Axiata having to provide additional financial support to overseas subsidiaries in the event of a distress situation.

Axiata's Baa3 BCA further reflects its holding company status and reliance on cash flows up-streamed from Celcom as well as dividends received from subsidiaries to service its debt. However, this risk is partially mitigated by the holdco's long-term debt profile, including the US$300 million, 5.375% notes which mature in 2020.

The rating may experience upward pressure should Axiata's fundamental credit profile continue to strengthen; in particular Moody's would like to see Axiata maintain consolidated, adjusted debt/EBITDA below 2.0x and for retained cash flow (RCF)/debt to 40%.

Downward rating pressure is unlikely given the positive outlook; however, the outlook could revert to stable should competition intensify further in any of its key markets such that the opcos start to report materially declining margins or borrow aggressively to fund capex. Moody's would seek evidence of this in increasing consolidated, adjusted debt/EBITDA rising above 2.5x or interest cover, as measured by (EBITDA-capex)/interest, falling below 3.5-4.0x. In addition, while Moody's anticipates that Axiata will commence the payment of dividends in 2011, we would be concerned if returns were overly aggressive such that RCF/debt fell below 30-35%. Furthermore, any unexpected development in regulatory risk, such as license renewal, in any of the markets in which it operates will also be negative for the rating.

In addition, given the rating incorporates a one-notch uplift from GoM ownership, Axiata's final rating is sensitive to any changes in the support level assigned by Moody's. Any reduction in shareholding by GoM related entities or any perceived scale back in operational involvement may result in reassessment of the support level and hence impact the rating.

The principal methodology used in this rating was Global Telecommunications Industry published in December 2007.

The last rating action on Axiata was on 28th April 2010 when Moody's affirmed its senior, unsecured bond rating following the successful completion of its inaugural US$300 million, 10-year, bond issue.

Axiata is one of Southeast Asia's largest regional cellular telecommunications providers with approximately 150 million subscribers as at 30th September 2010. Key investments include Celcom in Malaysia (wholly owned); XL in Indonesia (66.7% stake); Dialog in Sri Lanka (85% stake); Hello Axiata Ltd in Cambodia (wholly owned); and Robi in Bangladesh (70% stake) as well as a 29.6% stake in M1 in Singapore and 19.0% in Idea in India.

Axiata was demerged from Telekom Malaysia Berhad (rated A3/stable) in April 2008. Axiata is currently 65% directly owned by GOM related entities including a 43.05% stake held by Khazanah.

Hong Kong
Laura Acres
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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SUBSCRIBERS: (852) 3551-3077

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Moody's changes Axiata's outlook to positive
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