Gulf's offer casts doubts on Singtel Thai associate AIS's shareholding structure: Fitch

THE takeover bid by Thai power producer Gulf Energy Development for Intouch Holdings casts uncertainty over the shareholding structure of the largest Thai mobile operator, Advanced Info Service (AIS), said Fitch Ratings on Monday.

This comes after the energy player launched a bid for the Thai telecoms operator and its controlling shareholder, Intouch on Monday. The tender offer for shares in AIS depends on Gulf acquiring at least 50 per cent of Intouch.

Local telco Singapore Telecommunications (Singtel) has a 21 per cent effective equity interest in Intouch, and also owns about 23 per cent of AIS.

The transaction is still at its early stage, and it "remains unclear" how Gulf intends to fund the deal in the case that it is successful in obtaining both Thai companies, said Fitch.

While the investments in Intouch and AIS hold long-term strategic value to Singtel, Fitch highlighted that the tender offer would provide Singtel the financial flexibility to fund its 5G investment priorities and ease pressure on free cash flow.

"These investments offer a stable source of cash flow for Singtel, in light of AIS's entrenched position and the stabilising competition in Thailand," said Fitch.

Further, the ratings agency noted that Singtel faces intense rivalry in other key markets like Singapore, Australia, Indonesia, the Philippines and India, contributing to "slow recovery prospects over the next 12-18 months" amid Covid-19 restrictions and "structural challenges in the Australian fixed-line business".

"A disciplined financial policy remains a key driver of our 'stable outlook' on Singtel's ratings due to the low rating headroom," Fitch said.

Fitch also noted that the acquisition of Intouch and AIS would provide Gulf with more diversified cash flow and a larger income base. However, a "debt-funded structure" will likely put "additional pressure on Gulf's stretched balance sheet", added Fitch.

In 2020, Gulf had generated an earnings before interest, taxes depreciation and amortisation (Ebitda) of 13.5 billion baht (S$573.9 million), which is only a fraction of AIS's 76.6 billion baht. However, Gulf had generated 8.8 times net debt of its Ebitda, as compared to AIS's one time, according to the ratings agency.