Fitch Ratings has downgraded MTN‘s National Long-Term Rating to ‘AA-(zaf)’ from ‘AA(zaf)’ citing the group’s heightened business risk profile as a result of its growing reliance on cash generated from weak non-investment grade countries.
In noon trade on Wednesday (5 June) shares in MTN declined R2.55 or 1.45% to R173.20 on the JSE, some way off its 52 week best of R185.90. The All Share Index meanwhile traded 0.25% lower to 40,795 points.
The outlook is stable, the ratings group said, while also affirming MTN’s National Short-Term Rating at ‘F1+(zaf)’.
Fitch also affirmed MTN Holdings senior unsecured debt rating at ‘AA-(zaf)’.
Thew ratings group said that the Stable Outlook reflects MTN”s on-going strong cash generation and conservative leverage metrics.
Fitch said it expects MTN’s fund from operations (FFO) lease-adjusted leverage to trend at or below 1.5x over the short to medium term. “In addition‚ we also project pre-dividend free cash flow to sales to improve following two years of network investment in Nigeria and trending higher than 8% over the short to medium term”.
This, it said, provides MTN with an adequate level of financial flexibility to enable the group to spend on network quality and coverage and thus retain its all-important leading market shares‚ Fitch said.
It further pointed out that MTN’s business risk profile is heightened through its operational exposure to non-investment grade countries.
In particular the group’s largest contributor of cash flow is Nigeria (‘BB-‘/Stable)‚ which comprises 38% of consolidated Ebitda. “While such countries typically have good mobile prospects given low mobile penetration rates and non-existent fixed line infrastructure‚ the operations are susceptible to political instability and unpredictable regulatory authorities,” Fitch said.
African markets maturing
The ratings group said that with mobile penetration rates in South Africa now well in excess of 100% in addition to intensifying competition‚ the slowdown in the group’s South African operations will place increasing reliance on cash flow growth from non-South African operations to service debt at the Holding Company (HoldCo) level.
“Fitch expect some in-market consolidation to occur in markets such as South Africa‚ but also across the continent‚ over the next three years. However‚ given the uncertain timing‚ we will treat this M&A risk on an event basis‚” it said.
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