Fitch cuts Naspers debt to junk
Fitch Ratings has cut Naspers’ debt to junk, citing a deterioration in the company’s profitability.
The ratings group downgraded the South Africa-based media group’s long-term and short-term issuer default ratings were lowered one level to BB+ from BBB-, and to B from F3, respectively.
“The downgrade reflects the deterioration in the group’s profitability mainly due to its high development spend as Naspers continues to invest in growth opportunities,” Fitch said.
Fitch also downgraded the senior unsecured rating to BB+ from BBB-. The outlook is stable, it said.
The ratings firm noted that existing operations are performing well, but higher-than-expected investments in global e-commerce and sub-Saharan pay-TV opportunities have led us to reduce our expectations of EBITDA and free cashflow (FCF) over the next three years.
“Visibility of future cash flow generation is limited and the resulting increase in leverage means that Naspers’ credit metrics are no longer compatible with an investment-grade rating,” it added.
It further noted that Nasper’s equity stakes in Tencent and Mail.ru are a considerable liquidity source, which allows the ‘BB+’ rating to tolerate two years of weaker credit metrics due to high development spend.
E-commerce is Naspers second-largest division but is the fastest growing and management expects it to be the main ebitda growth engine in the years ahead.
“As a result of continued heavy development spend (R5.6 billion in the financial year to March 2014), this division is cash flow-negative and is unlikely to contribute to positive cash flow for at least the next 24 months,” Fitch said.
It said that while some of Naspers’ businesses are currently the largest integrated e-commerce platforms in their respective countries, uncertainty remains over when this division as a whole will generate sustainable positive cash flow.
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