20240702_EXCL_Laporan Hasil Pemeringkatan_31678481_lamp1.pdf

We consider Axiata a "stronger parent", with business in more than five Asian countries
and a larger business scale. Axiata's other subsidiaries and associates have strong
market positions, with 30%-40% market shares in Bangladesh and Cambodia, above
60% in Sri Lanka and over 50% in Malaysia.


Cross-Default Clause: Axiata's 'High' legal incentive to support XL is based on the
presence of a cross-default clause in its USD1 billion-euro medium-term note and USD1
billion multi-currency sukuk programmes, which make up 85% of Axiata's holding-
company level debt. A default by a principal subsidiary, including XL, would trigger the
cross-default clause in the US dollar debt instruments. The longest maturity of these
instruments is 2050, providing some certainty of permanence.


High Strategic Importance: Axiata's strategic incentive to support XL is 'High', given XL's
revenue and EBITDA contribution to Axiata have become increasingly important. XL
accounted for 40% of Axiata's consolidated revenue and 44% of reported EBITDA in
2023. Fitch expects the planned Link Net fixed broadband business transfer to XL to
substantially enhance XL's converged offerings. Additionally, the non-binding merger
discussions with Smartfren underscore the group's determination to bolster its
competitiveness in Indonesia's consolidated mobile market.


Weaker SCP at 'bb+': XL's Standalone Credit Profile (SCP) of 'bb+' reflects its weaker
market share of 17%, smaller scale and expected higher leverage compared with state-
owned PT Telekomunikasi Indonesia Tbk (Telkom, BBB/Stable) and PT Indosat Tbk
(BBB-/Positive). However, we expect XL's revenue diversification to improve with the
acquisition of Link Net subscribers.


High Ratings Headroom for SCP: We believe XL will maintain sufficient ratings
headroom for its 'bb+' SCP despite our expectation that higher capex from the upcoming
5G spectrum auction and additional annual license fee for the new spectrum will lead to
higher EBITDA net leverage at 1.4x-1.6x in 2025-2026.


Link Net Transaction Credit Neutral: The rating case does not factor in the additional
revenue and EBITDA from the acquired Link Net business, which is pending the outcome
of a vote by Link Net's independent shareholders. However, we expect the leverage
impact to be neutral as the estimated annual revenue of IDR2.8 trillion and assumption
of a 40% EBTIDA margin for the acquired business will offset the IDR1.9 trillion upfront
acquisition cost. XL will acquire Link Net's residential business with 750,000 fixed
broadband and pay-TV subscribers.


Higher Spectrum Capex: We assume the Indonesia government will hold auctions for
700MHz spectrum at end-2024 and for 3.5GHz spectrum auction in late 2025, and XL

will acquire 20MHz spectrum in the 700MHz band and 50MHz in the 3.5GHz band. We
estimate total spectrum upfront payment of IDR2.4 trillion for the 700MHz and IDR1.5
trillion for the 3.5GHz bands without any government incentive.


Potential Merger with Smartfren: We see the potential merger with Smartfren as event
risk, and will assess the impact of the merger when payment terms and the post-merger
ownership structure are clearer. Smartfren's Fitch-defined EBITDA net leverage was
6.8x at end-2023 but could improve after its IDR8.6 trillion rights issue, from which
IDR5.5 trillion proceeds are allocated for debt repayment, according to the prospectus.
The merger would improve XL's mobile market share to 24% and expand its spectrum
holdings with additional spectrum in the 800MHz and 2.3GHz bands.

DERIVATION SUMMARY

XL's IDRs factor in implied support from Axiata, as we deem overall linkages between
the two entities as strong. Under our PSL criteria, we equalise XL's ratings with those of
Axiata on 'High' legal and strategic ties between the two entities. XL remains the largest
contributor to Axiata's EBITDA and capex.


XL's SCP of 'bb+' reflects its smaller revenue market share, business scale, network and
spectrum holdings and less diversified business compared with Telkom. Telkom, through
its 70%-owned subsidiary, PT Telekomunikasi Selular (Telkomsel), has around 50%
revenue share of Indonesia's mobile market. Moreover, Telkom and Telkomsel have a
wider EBITDA margin and lower net leverage than XL. Telkom's IDRs continue to be
capped by Indonesia's sovereign rating (BBB/Stable) due to their close linkages and
absence of restrictions that limit cash and asset flow from Telkom to the government.


We rate XL's SCP one notch lower than Indosat's SCP of 'bbb-', reflecting the latter's
stronger credit profile after the Indosat-Hutch merger. Indosat has larger mobile
revenue market share (1Q24 Indosat: 26%, XL: 18%) and spectrum holdings (Indosat:
135Mhz, XL: 90Mhz) than XL while maintaining high ratings headroom below its positive
sensitivity of 1.3x EBITDA net leverage ratio.


XL is rated above state-owned energy company PT Perusahaan Gas Negara Tbk (PGN,
BBB-/AA+(idn)/Stable). XL's IDR reflects the credit strength of Axiata, whereas PGN's
IDR and National Rating are one notch below those of its immediate parent, PT
Pertamina (Persero) (BBB/Stable), to reflect our assessment of 'Medium' legal, strategic
and operational incentives for Pertamina to support PGN.

KEY ASSUMPTIONS

- Revenue growth of 5%-6% a year in 2024-2026 (2023: 11%) driven by high single-digit
growth in data and digital service revenue that will be offset by declining voice and SMS

revenue and weaker revenue from interconnection and other services.


- EBITDA margin of 30% in 2024 (2023: 28%) and deteriorating to 26%-27% in 2026
due to higher annual frequency fees;


- Non-spectrum cash capex of IDR8 trillion in 2024, according to the company's
guidance, and increasing to IDR8.5 trillion and IDR10 trillion in 2025 and 2026,
respectively, on expected 5G network roll-out and ex-Java expansion.


- Total capex includes additional IDR2.4 trillion upfront spectrum payment for 700MHz
band in 2024 and IDR1.5 trillion upfront spectrum payment for 3.5GHz band in 2025,
assuming the company will acquire 20MHz in the 700MHz band and 50MHz in the
3.5GHz band with no government incentive.


- Dividend payment of IDR636 billion from 2023 profit to be paid in 2024, with pay-out
ratio remaining at 50% (2023: 50%) of net profit in 2025-2026;


- The rating case forecast does not factor in the revenue and EBITDA contribution from
Link Net, nor the IDR1.9 trillion acquisition cost as the transaction is pending approval
from the independent shareholders of Link Net;


- Effective cash interest rate based on average ending debt balance remains at 8.2% for
2024 and gradually declining to 7.6% from 2025.


RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating
Action/Downgrade:


- A downgrade of Fitch's credit view of Axiata.


- Weakening of linkages with Axiata.


Factors that Could, Individually or Collectively, Lead to Positive Rating
Action/Upgrade:


- Fitch's credit view of Axiata turning to stable will lead to a revision of the Outlook on
XL's international and national ratings to Stable, provided linkages between the entities
remain intact.


- No upgrade is possible for the National Long-Term Rating, as it is already at the highest
level on the national scale.

LIQUIDITY AND DEBT STRUCTURE

Reasonable Refinancing Capability: XL has relatively low debt maturing in 2024 and
overall debt maturities are widely spread out over the next few years. XL has IDR1,360
billion of uncommitted available revolver limit at UOB Indonesia at end-1Q24.


We believe XL has reasonable refinancing ability, with access to debt and capital markets
and strong relationships with both local and foreign lenders. All outstanding bank loans
are provided on a clean basis, reflecting its solid banking access. Its entire debt is
denominated in Indonesian rupiah, in line with revenue and costs, while 54% of
borrowings carry floating interest rates as of 1Q24.

ISSUER PROFILE

XL, 66%-owned by Axiata, is Indonesia's third-largest mobile operator. The proposed
Link Net residential business transfer will significantly expand XL's fixed broadband
business to become the second-largest in Indonesia by subscribers.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING

The principal sources of information used in the analysis are described in the Applicable
Criteria.

PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS

XL's 'BBB' rating and Negative Outlook reflects the credit strength of its parent, Axiata,
based on the strong overall linkage between the entities.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in our credit analysis. Fitch's
macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector
key performance indicators and sector-level forecasts are among the data items
included.

ESG CONSIDERATIONS

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in
this section. A score of '3' means ESG issues are credit-neutral or have only a minimal
credit impact on the entity, either due to their nature or the way in which they are being
managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process;
they are an observation on the relevance and materiality of ESG factors in the rating

decision. For more information on Fitch's ESG Relevance Scores, visit
https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

                                      RATING ACTIONS



   ENTITY / DEBT            RATING                                           PRIOR 



   PT XL Axiata Tbk                                                            BBB Rating
                                 LT IDR      BBB Rating Outlook Negative
                                                                               Outlook
                                                                               Negative
                                 Affirmed



                                                                               AAA(idn) Rating
                                 Natl LT
                                                                               Outlook
                                                                               Negative
                                 AAA(idn) Rating Outlook Negative


                                 Affirmed



                                                                               BBB Rating
                                 LC LT IDR
                                                                               Outlook
                                                                               Negative
                                 BBB Rating Outlook Negative        Affirmed



      senior unsecured                                                         AAA(idn)
                                 Natl LT     AAA(idn)    Affirmed


VIEW ADDITIONAL RATING DETAILS


FITCH RATINGS ANALYSTS

Wenny Anthony
Analyst
Primary Rating Analyst
National
+62 21 4063 2249
wenny.anthony@fitchratings.com
PT Fitch Ratings Indonesia
DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof.Dr. Satrio Kav 3-5 Jakarta 12940


Mengjia Lu
Associate Director

Primary Rating Analyst
International
+65 6796 7259
mengjia.lu@fitchratings.com
Fitch Ratings Singapore Pte Ltd.
1 Wallich Street #19-01 Guoco Tower Singapore 078881


Shiv Kapoor, CFA
Director
Secondary Rating Analyst
+65 6796 2720
shiv.kapoor@fitchratings.com


Steve Durose
Managing Director
Committee Chairperson
+61 2 8256 0307
steve.durose@fitchratings.com

MEDIA CONTACTS

Leslie Tan
Singapore
+65 6796 7234
leslie.tan@thefitchgroup.com


Peter Hoflich
Singapore
+65 6796 7229
peter.hoflich@thefitchgroup.com


Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of
the transaction parties participated in the rating process except that the following
issuer(s), if any, did not participate in the rating process, or provide additional
information, beyond the issuer’s available public disclosure.

APPLICABLE CRITERIA

National Scale Rating Criteria (pub. 23 Dec 2020)

Sukuk Rating Criteria (pub. 13 Jun 2022)
Country-Specific Treatment of Recovery Ratings Criteria (pub. 04 Mar 2023)
Parent and Subsidiary Linkage Rating Criteria (pub. 17 Jun 2023)
Corporates Recovery Ratings and Instrument Ratings Criteria (pub. 14 Oct 2023)
(including rating assumption sensitivity)
Corporate Rating Criteria (pub. 04 Nov 2023) (including rating assumption sensitivity)
Sector Navigators – Addendum to the Corporate Rating Criteria (pub. 22 Jun 2024)

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to
criteria providing description of model(s).


Corporate Monitoring & Forecasting Model (COMFORT Model), v8.1.0 (1)

ADDITIONAL DISCLOSURES

Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy

ENDORSEMENT STATUS

PT XL Axiata Tbk                       EU Endorsed, UK Endorsed
PT XL Axiata Tbk                       EU Endorsed, UK Endorsed



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SOLICITATION STATUS

The ratings above were solicited and assigned or maintained by Fitch at the request of
the rated entity/issuer or a related third party. Any exceptions follow below.

                                 UNSOLICITED ISSUERS

 ENTITY/SECURITY        ISIN/CUSIP     RATING TYPE                         SOLICITATION
                                                                           STATUS


 PT XL Axiata Tbk       -              Local Currency Long Term Issuer     Unsolicited
                                       Default Rating


 PT XL Axiata Tbk       -              Long Term Issuer Default Rating     Unsolicited




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