What Moody’s thinks of Naspers

Moody’s Investors Service has cautioned against Naspers‘ susceptibility to political and economic instability, as well as to regulatory and currency fluctuation risks given its position as an emerging market operator.

However, the ratings firm has highlighted that Naspers’ investments in Tencent, Mail.ru Group, and Beijing Media Corporation are valued at over R270 billion as of 15 July 2013 (ca.US$28 billion).

Earlier this week, Moody’s affirmed Naspers Baa3 issuer rating and Baa3 US$700 million senior unsecured rating issued by Myriad International Holdings B.V. (MIH) while assigning a definitive Baa3 rating to the US$750 million long-term senior unsecured notes due 2020 issued by MIH.

The rating outlook is stable, Moody’s said.

On Wednesday, the JSE-listed media and internet firm announced that its bond offering, priced at US$750 million, exceeded demand.

As a result, the group said it placed an additional US$250 million in follow-on bonds, taking the offering to US$1 billion.

Shares in Naspers hit a record high of R800 on the JSE on Tuesday (16 July), but slipped back to R791.50 by midday on Thursday (17 July).

“Proceeds from the bond issuance will be used to repay borrowings under the group’s RCF, improving the group’s liquidity profile by further lengthening its debt maturity profile and increasing the available amount under the RCF to pursue debt funded acquisitions in e-commerce,” said Dion Bate, Moody’s assistant vice president.

Moody’s said that Naspers’ Baa3 global local currency issuer rating reflects its leading market positions across a range of diversified media subsectors that are at different stages of maturity and in a variety of geographies.

“The rating also takes into account the group’s strong operating and financial performance, sustainable cash flow generation profile and good growth prospects,” it said.

It added that the rating is enhanced by the financial flexibility provided by Naspers’ valuable holdings in publicly quoted entities such as Tencent and Mail.ru Group, whose growing dividend streams are a source of additional cash flow.

Moody’s said that Naspers’ robust performance in the pay-TV business, with profitable subscriber growth notably in the low income segment, is set to gain further traction driven by the current low market penetration in Sub-Saharan Africa and the improved affordability of entertainment packages.

Naspers caution

However, the ratings group warned that the Baa3 rating also takes into account the group’s position as an emerging market operator, and its susceptibility to political and economic instability, as well as to regulatory and currency fluctuation risks.

“In addition, Naspers’ rating is constrained by its complex organisational structure as debt service is predominantly reliant on cash flows generated by entities (South African pay-TV and print) that have minority shareholders,” it said.

The stable outlook, according to Moody’s,  reflects its expectation that Naspers will maintain its leadership positions in the media subsectors in which it operates, “deliver solid operating and financial performance and continue to apply prudent financial policies”.

“The current Baa3 rating for Naspers allows for some headroom for bolt-on, debt-financed acquisition investments that the Group may make in the context of its growth strategy,” Moody’s added.

The ratings group said that, while it does anticipate that some of Naspers’ key credit metrics are likely deteriorate during financial year 2014 as Naspers rolls out its Digital Terrestrial Television (DTT) capital expenditure, the rating can withstand a temporary deterioration given the significant liquidity offered by publically listed investments.

“On the other hand, upward pressure in Naspers’ rating or outlook could result from a decision to implement more conservative financial metric targets. This would also assume less flexibility in the ratings for debt financed acquisitions which have been a feature in the past with Naspers’ rating positioning,” it said.

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What Moody’s thinks of Naspers