Moody's downgrades Telekom Malaysia's issuer rating to A3

Approximately $1.1 Billion of Debt Securities Affected Moody's Investor Services has today downgraded Telekom Malaysia Berhad's ("TMB") local currency issuer rating from A2 to A3. This follows Moody's decision to downgrade TMB's fundamental rating to A3 from A2 and also increase the dependency ratio assigned under the Joint Default Analysis model. At the same time, Moody's has affirmed TMB's A3 senior unsecured foreign currency rating. The outlook on all ratings is stable. "The downgrade on the fundamental rating follows indications from management that they are willing to tolerate a higher degree of leverage than is compatible with an A2 rating," says Laura Acres, a Moody's Vice President. Adding, "Plans to return substantially all of the Rm4.025 billion receivable from sister company Axiata Berhad to TMB shareholders, rather than reduce leverage, is testament to this willingness to maintain leverage at the 2.0-2.5x level." "On the other hand, TMB's virtual monopoly position as the sole provider of fixed line and broadband telecommunications services in Malaysia coupled with its relatively strong cash flow supported by a sound debt maturity profile and balanced liquidity needs, continue to support a solid fundamental rating of A3," adds Acres, also Moody's Lead Analyst for TMB The increase in the dependency ratio reflects the fact that TMB's revenue base is wholly reliant on the Malaysian economy as well as the inter-relation between it and the Government given the scope of the HSBB project. Moody's also builds in a medium degree of support from the government given the ultimate ownership structure and consistent objectives between the two, again reflective of the HSBB project currently underway. At the same time, constraining rating factors include the degree of concentration arising from a monocular business model in a single market; the lack of growth potential in the traditional fixed line business given ongoing substitution with cellular providers; and potential execution risk pertaining to the HSBB project being carried out in conjunction with the government. In particular, Moody's remains cognizant of the demands that this project may make on TMB's cash flow, particularly when government grants have been exhausted. The local currency issuer rating may experience upward pressure should TMB's fundamental credit rating improve; in particular Moody's would like to see improving free cash flows resulting in adjusted free cash flow/adjusted debt being consistently above15-20% and debt/EBITDA falling below 2.0x on a consistent basis. An upgrade in Malaysia's foreign currency country ceiling would trigger an upgrade of TMB's senior unsecured bond rating. Downward pressure could arise should competition emerge in the sector such that TMB's dominance starts to erode, although Moody's considers this to be unlikely in the short-to-medium term. Moody's would also be concerned for the rating should the terms of the HSBB project change such that TMB was to shoulder an increased contribution or the timing of its payments were accelerated. Such risks would be measured by free cash flow/adjusted debt moving into negative territory on a consistent basis or adjusted debt/EBITDA rising above 2.5x. The principal methodology used in rating TMB was the Global Telecommunications Industry dated December 2007, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory. The last rating action was taken on 6th March, 2008, when TMB's A2/stable local currency issuer rating was assigned and foreign currency senior unsecured rating was downgraded to A3/stable. TMB is the largest fixed line and broadband telecommunications operator in Malaysia. Hong Kong Laura Acres Vice President - Senior Analyst Corporate Finance Group Moody's Asia Pacific Ltd. JOURNALISTS: (852) 2916-1150 SUBSCRIBERS: (852) 3551-3077 Singapore Tony Tsai Senior Vice President Corporate Finance Group Moody's Singapore Pte Ltd. JOURNALISTS: (852) 2916-1150 SUBSCRIBERS: (65) 6398-8308

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