Moody’s has affirmed the credit rating of Telkom and 10 other companies, in line with the group’s recent review of the South African government bond rating, which was held one notch above junk status with a stable outlook.
Because of its close ties to the South African government, Telkom was put under review for a downgrade in November 2017 along with all other companies linked to the national sovereign rating.
Thanks to a swing into much more positive territory – with a boost in business confidence and higher than expected GDP growth – these companies also share in the lighter sentiment surrounding government bonds.
Referring specifically to Telkom in its update, Moody’s said that the telco still has a high dependence on government, while enjoying moderate support, which is why it is in-line with the SA bond rating of Baa3 with a stable outlook.
“Telkom’s Baseline Credit Assessment (BCA) of baa3 continues to reflect the transformation process of its business model and the execution challenges faced through: strategies to increase adoption of information communication technology among its business customers; customer service improvements; and network upgrades for its improved bundled offerings,” it said.
The current BCA is also based on Telkom’s low leverage and overall strong credit metrics for the rating category, Moody’s said, which offsets, to some degree, the group’s operating and competitive challenges, as well as the larger capital investments required to deliver on its key strategies for the upcoming years.
“The rating further assumes that Telkom will not experience any difficulties in terms of liquidity, refinancing or funding and so will be able to meet its financial and operating commitments. To the extent these would arise, further downward pressure would be exerted on the rating or outlook.”
However, Moody’s said it recognises the company’s position as a leading telecommunications operator, with a strong market position in South Africa’s fixed-line business and a growing presence in broadband and mobile offerings.
“The stable outlook assumes that Telkom continues to execute on its strategies to de-risk the business from declining fixed line voice revenues and gain steady market share in its mobile offering. The stable outlook further assumes that leverage will not increase materially from current levels and liquidity will remain strong at all times,” the ratings firm said.