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Research: Rating Action: Moody’s affirms China Mobile’s A1 rating; stable outlook

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Research: Rating Action: Moody’s affirms China Mobile’s A1 rating;  stable outlook

Hong Kong, September 21, 2022 — Moody’s Investors Service has affirmed China Mobile Limited’s (CML) A1 issuer rating.

The outlook remains stable.

“The affirmation of CML’s rating reflects its dominant position in China’s mobile telecommunications market, which drives steady profit and cash flow generation, and very strong balance sheet with a substantial net cash position. CML’s credit rating is constrained only by China’s sovereign rating,” says Gloria Tsuen, a Moody’s Vice President and Senior Credit Officer.

RATIONAL RATINGS

CML’s A1 rating reflects the company’s leading position in China’s mobile telecommunications and home broadband markets, and its very strong financial profile and liquidity, supported by its solid operating cash flow, moderate capital spending, strong cash position and no reported debt (excluding lease liabilities) .

Despite intense competition, CML has maintained a dominant share in China’s mobile market, with an overall market share of 58% and 5G market share of 55% as of the end of June 2022, based on the number of subscribers [1].

At the same time, its home broadband market share by number of customers [2] increased significantly to 48% as of the end of June 2022 from 23% as of the end of 2015 when it entered the market, mainly driven by enhanced network quality and services.

Despite ongoing investments in its 5G network, CML’s capital spending will remain manageable because its existing 4G infrastructure provides a strong base for upgrades and additional buildouts. The company also generates strong adjusted operating cash flow, which Moody’s expects to average around RMB305 billion each year, compared with an expected adjusted capital spending of around RMB230 billion each year, between 2022 and 2024.

The company has a consistently strong net cash position, with RMB361 billion in cash and deposits as of the end of June 2022 and no reported debt. Although it plans to increase its dividend payout ratio, the incremental dividend payments can be absorbed by its strong balance sheet.

CML’s adjusted debt/EBITDA was 0.2x for the 12 months to June 2022, driven primarily by tower leases. Moody’s expects the ratio to remain at similar levels over the next 12-18 months.

While CML’s operating and financial profiles are very strong for its rating level, the company is exposed to some emerging market and regulatory risk arising from its China-based operations. As such, its rating is constrained by China’s sovereign rating.

ESG considerations have a neutral-to-low impact on CML’s rating, as the company has historically maintained a conservative financial policy with a solid record of managing environmental and social risks well. Its ability to innovate and adapt to customers’ sustainability requirements help mitigate the impact of its risk exposures associated with energy consumption, data privacy and societal trends over time.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The stable outlook reflects Moody’s expectation that CML will maintain its very strong operating and financial profiles over the next 12-18 months.

Given CML’s very strong credit profile, Moody’s could upgrade the rating if China’s sovereign rating is upgraded.

Because CML’s credit profile is strong for its rating level, a downgrade is unlikely without a material and precipitous change in its operating profile and the regulatory environment. However, any negative action on the sovereign rating will trigger a downgrade of the company’s rating.

The principal methodology used in these ratings was Telecommunications Service Providers published in January 2017 and available at https://ratings.moodys.com/api/rmc-documents/48906. Alternatively, please see the Rating Methodologies page https://ratings.moodys.com for a copy of this methodology.

China Mobile Limited (CML) is China’s leading provider of mobile telecommunications services. It is around 70% owned by China Mobile Communications Group Co., Ltd., which in turn is wholly owned by China’s State-Owned Assets Supervision and Administration Commission.

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are requested. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Moody’s considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody’s. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody’s with information for the purposes of its ratings process. Please refer to https://ratings.moodys.com for the Regulatory Disclosures for each credit rating action, shown on the issuer/deal page, and for Moody’s Policy for Designating Non-Participating Rated Entities, shown on https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK . Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

REFERENCES/CITATIONS

[1] Market share data is based on public disclosures by CML, China Telecom Corporation Limited, and China Unicom (Hong Kong) Limited

[2] Market share data is based on public disclosures by CML, China Telecom Corporation Limited, and China Unicom (Hong Kong) Limited

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Gloria Tsuen, CFA
VP – Senior Credit Officer
Corporate Finance Group
Moody’s Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong,
China (Hong Kong SAR)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Clement Cheuk Yiu Wong
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody’s Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong,
China (Hong Kong SAR)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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