Moody's Investors Service said on March 2 that China's four largest
telecommunications groups all offer sound operating and financial profiles.
China Telecom, China Mobile, China Netcom and China Unicom derive their
support from solid market positions, positive growth outlooks, conservative
financial policies and a supportive regulatory framework, Moody's said in a new
study. The analysis, authored by Moody's Vice-President Charles Macgregor, is
part of a major project by the rating agency to enhance the theoretical and
practical frameworks needed for the credit analysis of leading Chinese companies
and their industries.
Earlier reports from the ongoing project include those for the airline
industry, power generation and oil and gas. All reports, including this latest
one on telecommunications, are also aimed at placing Chinese companies in a
broader context by comparing them with their international peers.
Of the four major telecommunications companies, only China Mobile (Hong Kong)
Limited is currently rated by Moody's, with a Baa1 result (under review for
possible upgrade). However, the other three unrated companies all exhibit sound
credit profiles.
"Moody's recognizes the sector's importance to China's economic development,
as it provides essential communi-cations infrastructure and is now emerging as a
significant source of tax revenue," Macgregor said, referring to the key rating
factors.
Furthermore, the report points to the ongoing growth potential of China's
telecommunications market, which remains relatively immature and is developing
with amazing speed. Both fixed-line and mobile phone penetration in China is
around 20 per cent.
"China's market now has roughly 300 million mobile subscribers, the world's
highest number, after having grown by around 80 million in 2003 and 60 million
in 2002," Macgregor explained. "Growth in the telecom sector has outstripped
that of the national GDP and given significant latent demand for services,
although in recent years the gap has ameliorated."
Looking ahead, a challenge for operators will be to achieve greater cost
efficiency to offset the potential impact of a downward move in operating
margins. To a certain degree, greater economies of scale, as subscribers and
usage grow, should also alleviate price pressures.
