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Axiata Group Berhad is set to derive a significant portion of its earnings from three high-risk emerging markets-Bangladesh, Sri Lanka and Cambodia-following a major corporate restructuring, according to S&P Global Ratings.
Its subsidiary Robi Axiata Ltd, Bangladesh's second-largest telecom operator and a publicly listed company, currently faces financial uncertainty as Axiata reshapes its business strategy.
The Malaysian telecom giant recently confirmed a merger between its Indonesian subsidiary PT XL Axiata and Smartfren Telecom, a pioneer of 4G services in Indonesia.
According to S&P, Axiata's earnings profile is expected to weaken, with more than 70 per cent of its consolidated adjusted EBITDA now coming from these three emerging markets.
While these countries offer strong growth potential, they also pose significant regulatory and economic risks, the rating agency warned.
S&P highlighted the political turmoil in Bangladesh in late 2024, which saw nationwide protests and the abrupt resignation of the then prime minister Sheikh Hasina on August 05.
The unrest led to an 11-day disruption to mobile and broadband services, directly impacting operators like Robi.
The Bangladeshi taka (BDT) weakened, further pressuring Robi's earnings.
Despite these challenges, S&P affirmed Axiata Group's 'BBB' credit rating, though it revised the company's stand-alone credit profile to 'bbb-' from 'bbb', citing weaker earnings quality.
"This deterioration stems from Axiata's loss of control over XL Axiata and its rising reliance on cash flow from higher-risk markets," cited S&P.
However, it added that Axiata could still benefit from government support in Malaysia if needed.
S&P maintained a stable outlook for Axiata, expecting the company to keep a debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) ratio between 2x and 3x over the next 24 months, aided by its geographically diversified portfolio.
As Axiata navigates these challenges, the performance of its Bangladesh operations will be critical in determining the company's financial stability amid rising market risks.
jasimharoon@yahoo.com