How ratings firms rank SA operators

Ratings firm Standard & Poor’s (S&P) has recently updated its ratings for most of South Africa’s mobile operators, with Vodacom set to retain a clear leading position in the domestic market over the next twelve months.

S&P, however, also highlights the increasingly challenging market conditions in SA for Vodacom.

“We expect higher competition in the coming year as Telkom and Cell C are rolling out or upgrading their networks and marketing aggressive pricing offers, in particular in data products,” the ratings group said.

S&P says it expects Vodacom’s network investment to remain sizable, notably to facilitate the expansion of its transmission capacity and radio access networks in response to escalating data traffic.

S&P stressed that it could lower the rating if the group’s operating measures or business positions significantly weakened, or if the group introduced a more aggressive financial policy, which could lead to persistently weaker cash flow generation and credit measures.

“Additionally, we could consider a downgrade if Vodacom’s liquidity remained, over a lengthy period, below levels that we believe are adequate,” it continued.

“Given Vodacom’s business risk profile characteristics, which include a strong market position in a competitive, mature market and international operations with weak credit quality, we are unlikely to raise the ratings in the medium term,” S&P concluded.

Cell C

For Cell C, the ratings agency last month revised its outlook to stable, from a previous ‘positive’ position. While CEO of the group, Alan Knott-Craig, has been busy shaking up the market with a number of attractive offerings for mobile voice and data, S&P says that its affirmation of a ‘B-‘ rating reflects the group’s opportunities but also the execution risks and business challenges of Cell C’s turnaround strategy.

“We still assess Cell C’s business risk as “weak” and its financial risk profile as highly leveraged,” it said.

“The stable outlook reflects Standard & Poor’s expectations that Cell C will continue to receive timely financial support from its main shareholder to fund its activities and debt obligations, if needed,” S&P said.

It expects that Cell C will continue to increase its customer base steadily, and reduce high churn rates. “This will be critical for achieving more rapid EBITDA growth, improving profitability, and reaching positive free cash flow in the coming years, before saturation of the South African market.”

According to S&P, ratings upside could arise if Cell C can achieve material EBITDA growth-such as being on track to approach EBITDA of ZAR2 billion annually-improve profitability, and make significant progress toward generating positive free operating cash flow. “The company’s maintenance of sound medium-term liquidity prospects would also be an important consideration,” it said.

Conversely, S&P says that a negative rating action is likely if Cell C’s liquidity deteriorates without any supporting measures from parent company Oger Telecom.


In June, S&P retained its negative outlook for Telkom and views the group’s business risk profile as “fair” and its financial risk profile as “modest.”

S&P says its outlook for Telkom reflects the risk of a one-notch downgrade over the next 12 months if continued strong pressure on Telkom’s traditional fixed-line voice revenues, operating losses for mobile operations, and heightened competition were to result in a prolonged erosion of revenues and profitability.

“The surge in capex stands to depress Telkom’s generation of free cash flow, which could be negative over the next two years. Combined with shareholder distributions, this may lead in turn to an increase in the company’s leverage,” the group said.

S&P says it could lower the rating on Telkom in the event of a further marked weakening in the company’s business risk profile, its inability to sustain positive Free Operating Cash Flow (FOCF), or a durable decline in credit metrics to levels not commensurate with the current ‘BBB’ rating, notably adjusted ratios of gross debt to EBITDA in excess of 1.5x or funds from operations to debt at or below 50%.

“We could revise the outlook to stable if we anticipate stabilisation of the core fixed-line operations, maintenance of the EBITDA margin of at least 25%, pronounced progress in building a sizable and profitable mobile business, and if the company demonstrates its capacity to protect credit metrics in line with our rating expectations.”

“An outlook revision to stable would also hinge on Telkom’s maintenance of adequate liquidity, in particular through a lengthening of the debt maturity profile,” S&P said.


While S&P does not rate MTN, rival firm, Fitch Ratings has recently affirmed MTN Group’s national long-term rating at ‘AA-(zaf)’ and national short-term rating at ‘F1+(zaf)’. It also provided a ‘stable’ outlook for the group.

The agency also affirmed MTN’s wholly owned subsidiary, MTN Holdings senior unsecured rating at ‘AA-(zaf)’.

The affirmation is supported by MTN’s conservative leverage profile and high pre-dividend free cash flow generation despite increased competition in core Nigerian and South African markets, the ratings agency said.

It warns that political instability, country and regulatory risks continue to be the key constraining factors for MTN’s ratings.

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How ratings firms rank SA operators