S&P expects conservative MTN dividend policy

Standard & Poor’s Ratings Services has affirmed its ‘BBB-‘ long-term corporate credit ratings on MTN Group.

The outlook is negative, reflecting the uncertainty regarding the final amount of the fine and increasing country risk in Nigeria and South Africa, the ratings firm said.

Standard & Poor’s affirmed its ‘zaAA-‘ South Africa national scale ratings on MTN Group and also affirmed its ‘BBB-‘ issue ratings on senior unsecured debt issued by MTN Group.

“We removed all the ratings from CreditWatch, where we placed them with
negative implications on October 29, 2015,” it said.

“The affirmation reflects our view that MTN’s Standard & Poor’s-adjusted leverage (debt to EBITDA) will remain below 1.5x, including the company’s R9.3 billion provision related to the Nigerian Communication Commission (NCC)’s pending fine,” it said.

S&P said it anticipates a more conservative dividend policy as it maintains sufficient liquidity to address Nigeria country and regulatory risk.

“We also note increased sovereign risk related to Nigeria and South Africa, which contribute, respectively, 35% and 27% of MTN’s revenue. Both sovereign ratings carry negative outlooks, and we currently cap our rating on MTN at two notches above the blended sovereign rating on Nigeria and South Africa,” it said.

S&P noted that the NCC’s fine, related to delayed disconnections of unregistered subscribers, has been reduced to $3.9 billion from $5.2 billion. MTN Nigeria has already made a $250 million good-faith payment to the NCC, and the two are negotiating the final fine amount, the terms of payment, and the time frame in which it should be paid.

The ratings agency said its assessment of MTN’s business risk profile is supported by the group’s leading market positions in 15 of the 22 countries where it operates; its geographic diversity; licenses for third-generation and long-term evolution technology; more than 230 million subscribers; and growing markets that provide potential for continued, albeit unpredictable, revenue and EBITDA growth.

“We could lower the ratings on MTN if a substantially higher regulatory fine increases our forecast adjusted leverage ratio above 1.5x for a prolonged period, or if the time frame for payment weakens MTN’s liquidity to an extent that we do not believe MTN can cope with a sovereign stress, which is necessary for a rating above the blended sovereign rating,” S&P said.

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