Telkom liquidity “adequate” – S&P
Standard & Poor’s Ratings Services has described Telkom as having “sound financial flexibility” with an “adequate” liquidity due to the company having R564 million cash on hand, among other elements.
On Tuesday (4 November) the ratings firm lowered its long-term corporate credit rating on Telkom from BBB to BBB-, which is considered by market participants lowest investment grade.
S&P said it assessed Telkom’s liquidity as “adequate,” based on the fact that the group had R564 million of cash on hand, about R4.3 billion of liquid short-term investments, and roughly R4.0 billion of undrawn committed credit facilities.
This, combined with Telkom’s R10 billion domestic medium-term note program, altogether provided Telkom with sound financial flexibility to cover an expected rise in network investments stemming from the mobile network rollout and the launch of a multi-year material upgrade of the fixed infrastructure, S&P said.
The ratings agency also highlighted Telkom’s short-term debt of R1.4 billion, mostly consisting of commercial paper, while it anticipates that the telecoms firm will resume a modest dividend distribution beyond 2013, after the suspension of all shareholder returns for fiscal 2013.
“Overall, we estimate Telkom’s coverage of liquidity uses by available liquidity sources to be in excess of 1.5x for the 12 months to end-September 2013.”
“The next major debt maturity consists of the R4.1 billion syndicated credit facilities, of which R2.0 billion was drawn on Sept. 30, 2012. This facility is due in December 2013,” the ratings firm said.
“We expect the company to proactively work on lengthening its debt maturity profile in the coming months. We also expect the company to continue to limit its overall exposure to foreign currency debt,” S&P said.
Some of Telkom’s debt outstanding – including the R2.5 billion bond issue (TL20) – carries financial maintenance covenants, the ratings group pointed out.
Last month, Telkom reported an 80.6% decline in headline earnings per share for the six months ended September 2012 to 37.2 cents from 191.7 cents in the previous period.
“Although unlikely in the next two years, we could further lower the ratings on Telkom in the event of a more significant weakening in the company’s business risk profile than we currently anticipate,” F&S warned.
It stressed that a ratings upgrade was unlikely in the next two years, given the continued strain on Telkom’s fixed-line business, and uncertainties concerning the group’s future business performance in domestic mobile activities.
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