OREANDA-NEWS. Singapore Telecommunications Limited's (Singtel, A+/Stable) ratings may come under pressure if it proceeds to acquire Temasek Holdings' stake in Thailand's Intouch Holdings, after holding talks on a deal as reported, says Fitch Ratings. Temasek currently has a 40.5% equity interest in Intouch, which owns 40.45% of Singtel's 23.3%-owned Thai associate company, Advanced Info Service Public Company Limited (AIS, BBB+/Stable).

Such an acquisition, if debt-funded, would further weaken Singtel's net leverage, and may threaten its ratings, as ratings headroom is already low. Excluding any major debt-funded acquisition, Fitch expects SingTel's FFO-adjusted net leverage for the financial year ending March 2017 (FY17) to be around 2.0x (FY16: 2.1x); near the level above which we may consider negative rating action. If Singtel were to acquire Temasek's entire SGD3bn interest in Intouch and fund it through additional debt, Singtel's net leverage could increase to around 2.2x-2.5x in FY17-FY18.

Aside from Singtel's stated long-term ambitions to increase its stakes in regional associates, Fitch does not have information that any transaction will happen or how it would be funded if any deal went ahead. Full or partial equity funding, or divestment of Singtel's stake in NetLink Trust ahead of the Infocomm Development Authority's mandated April 2018 deadline would provide Singtel with additional financial headroom.

Thailand currently caps foreign ownership of local facilities-based telecommunication operators to less than 50%. However, this should not restrict any Intouch deal as Temasek's indirect stake of 16.4% and Singtel's 23.3% in AIS would be well within the foreign ownership limit.

We do not think that a potential transaction would have any impact on AIS's ratings unless it were to lead to stronger operational and strategic linkages between AIS and Singtel.