Fitch Ratings has assigned a first-time Long-Term Issuer Default Rating (IDR) of 'BB' to Romanian telecom group Digi Communications (BVB: DIGI) with a stable outlook. 

This rating reflects Digi's strong market positions in Romania's fixed-line and mobile segments, its growing geographic diversification, robust growth prospects, and moderate leverage, according to Fitch. 

At the end of 2023, Digi held significant subscriber shares in fixed-broadband (70%), pay-TV (73%), and mobile services (24%) in Romania. 

"This is underscored by Digi's domestic EBITDAal margin (company-defined) of 39% with strong cash generation. We expect Digi to maintain its solid market positions, supported by an advanced fibre network, the expansion of its mobile network including 5G services, and its offer of fixed-mobile convergent services," reads the Fitch report. 

However, the rating also considers the expected negative free cash flow over the next five years, driven by investments in international markets, particularly in launching operations in Portugal and Belgium. Execution risks, partial network ownership outside Romania, and relatively low profitability are also noted concerns. 

Despite these challenges, the stable outlook indicates that Digi is expected to generate sufficient cash flow in Romania to support its international expansion. Fitch anticipates that Digi's EBITDA net leverage will remain within rating thresholds, trending towards an upgraded sensitivity by 2028. 

Digi's expansion strategy includes entering new markets like Portugal and Belgium, which will enhance its geographic diversification but also increase execution risks. In Spain, Digi's acquisition of spectrum from the merged Orange-MasMovil and a new agreement with Telefonica are expected to boost revenue growth and improve margins. 

Overall, Digi's solid domestic cash generation, strategic investments, and proactive management are expected to sustain its 'BB' rating with a stable outlook.

andrei@romania-insider.com

(Photo source: Digi)