The Competition Tribunal\u2019s R449m fine on Telkom for abusing its dominance in the telecommunications market is credit negative as it will reduce cash flow and increase leverage for fiscal years ending March 2013 and 2014\u201a ratings agency Moody\u2019s warned on Monday.<\/p>\n
The tribunal fined Telkom last week\u201a but the fine was well below the Competition Commission\u2019s recommended R3.2bn.<\/p>\n
\u201cThe penalty also comes amid depressed operating performance over the past 12 months\u201a\u201d Douglas Rowlings\u201a associate analyst at Moody’s\u201a said.<\/p>\n
The tribunal found that between 1999 and 2004 Telkom had refused to supply essential services to independent value-added network services (VANS) providers and induced customers to not deal with these VANS providers.<\/p>\n
Moody\u2019s said the penalty\u201a assuming Telkom did not appeal the judgment\u201a would result in the company paying R224.5m in the next six months\u201a and another R224.5m in 18 months.<\/p>\n
Telkom plans to spend R7.5bn in capital expenditure in the next financial year.<\/p>\n
\u201cWith a cash balance at March 31 of R1.168bn (plus another R2.025bn on call from repurchase agreements)\u201a and free cash flow for the 12 months ended in September 2011 of R3.196bn\u201a the fine payments and capex will erode the company\u2019s liquidity and increase leverage\u201a\u201d Rowlings said.<\/p>\n
The ratings agency estimated paying the total fine would add pressure on the ratio of net debt to earnings before interest\u201a depreciation\u201a taxes\u201a and amortisation (ebidta).<\/p>\n
\u201cManagement\u2019s ability to stabilise the continuing downward trajectory of Telkom\u2019s ebidta margin and interest coverage will be an important measure of the effectiveness of its turnaround strategy\u201a\u201d Rowlings said.<\/p>\n
Telkom\u201a Moody\u2019s noted\u201a had struggled to stabilise its business amid revenue losses and margin compression owing to intensifying competition and customers abandoning the company\u2019s higher-margin\u201a fixed-line services for mobile services.<\/p>\n
The government\u2019s rejection of a proposal by KT Corporation to buy a 20% stake in Telkom would not make things easier for Telkom\u201a Moody\u2019s noted.<\/p>\n
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