By Jennifer Tan

SINGAPORE, July 4 (Reuters) Asian telecoms operators will likely step up their merger and acquisition activity, but this could spur them to adopt aggressive financial policies that might affect their credit ratios, ratings firm Standard &Poor's said.

Most Asia Pacific telecoms firms have intermediate-to-modest financial risk profiles, but significant improvement in credit ratios could be limited, especially if they take on more debt to boost their overseas expansion efforts, Yasmin Wirjawan, director of S&P's Corporate and Infrastructure Ratings in South and Southeast Asia, told a media conference call on Tuesday.

''Some operators are increasingly focused on delivering shareholder value, through higher dividends or acquisitions, which could lead them to adopt more aggressive financial policies,'' she added.

S&P said the median ratio of debt to earnings before interest, tax, depreciation and amortisation (EBITDA) for regional telecoms firms remains stable at about 1.6 times in 2005, versus 3 times for global peers.

The median ratio of funds from operations to debt rose to 59 percent last year, from 35 percent in 2003, thanks to gradual debt reduction.

John Bailey, director of Corporate and Infrastructure Ratings in greater China, pointed to S&P's CreditWatch Negative rating on Hong Kong's PCCW-HKT Telephone Ltd. after its parent PCCW Ltd. announced it was in talks with various third parties to sell all its core telecom and media assets.

''Our principal concern here is of a leveraged acquisition.

With some of the players that have been identified, they are very much return-focused financial buyers and may look for debt funding to try and do this,'' he said.

''If PCCW-HKT was leveraged up, there would be a decline in the company's credit protection ratios, such as their debt to EBITDA and cashflow to total debt ratios. It's still early days, but if the company was leveraged up, we would be inclined to reduce the rating.'' Two suitors have emerged thus far for PCCW's phone and media units -- Australia's Macquarie Bank and the Asian arm of U.S. buyout house Texas Pacific Group Meanwhile, Singapore Telecommunications Ltd.'s regional ambitions are likely to face stumbling blocks, with other acquisition-hungry rivals joining the fray, S&P said.

''Many Asia-Pacific telecom operators have significant cash balances, and in light of declining growth in domestic markets, they are seeking more opportunities outside their home turf, so I think for SingTel to find attractive investments, it will be challenging,'' said Wirjawan, referring to players like Telekom Malaysia Bhd. and SK Telecom Co.

Facing a small home market of just 4.4 million people, where over nine out of 10 individuals own a mobile phone, SingTel has spent S billion ( billion) in recent years buying operators in high-growth Asian nations with fewer cellphone users, and in the bigger Australian market.

REUTERS MQA DS1545