{"id":40256,"date":"2013-06-20T10:00:59","date_gmt":"2013-06-20T08:00:59","guid":{"rendered":"http:\/\/businesstech.co.za\/news\/?p=40256"},"modified":"2013-06-20T10:26:57","modified_gmt":"2013-06-20T08:26:57","slug":"fitch-warns-mtn-on-sa-market","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/mobile\/40256\/fitch-warns-mtn-on-sa-market\/","title":{"rendered":"Fitch warns MTN on SA market"},"content":{"rendered":"

Fitch Ratings<\/a> has assigned MTN Group<\/a> a long term foreign currency issuer default rating\u00a0of ‘BBB’, with a stable outlook.<\/p>\n

Supervisory analyst at\u00a0Fitch Ratings Southern Africa,\u00a0Darshak Juta<\/a>, pointed out that this first time rating would be applicable for foreign investors looking at MTN as an investment case and the group’s foreign currency debt.<\/p>\n

In Afternoon trade on the JSE on Wednesday (19 June), shares in MTN declined 1.38% or R2.48 to R177.47, giving the group a market cap of R334 billion.<\/p>\n

The agency\u00a0said its ratings reflect MTN’s leading market position in most of the markets in which it operates. “The strong position allows the group to secure the high-revenue subscribers and generate the cash flow necessary to re-invest in network quality and value-added products such as mobile banking.”<\/p>\n

Earlier in June, Fitch downgraded\u00a0MTN\u2018s National Long-Term Rating to \u2018AA-(zaf)\u2019 from \u2018AA(zaf)\u2019 citing\u00a0the group\u2019s heightened business risk profile as a result of its growing reliance on cash generated from weak non-investment grade countries.<\/p>\n

In \u00a0a ratings announcement on Wednesday (19 June), Fitch pointed to MTN’s adequate financial flexibility.<\/p>\n

Fitch said it expects MTN’s funds from operations (FFO) lease-adjusted leverage to trend at or below 1.5x over the short to medium term.<\/p>\n

“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.”<\/p>\n

This, Fitch 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.<\/p>\n

Country risk:<\/strong><\/p>\n

MTN’s business risk profile is heightened through its operational exposure to non-investment grade countries, the ratings agency pointed out.<\/p>\n

In particular the group’s largest contributor of cash flow is Nigeria (‘BB-‘\/Stable), which comprises 38% of consolidated EBITDA.<\/p>\n

“While such countries typically have solid 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.<\/p>\n

South African market<\/strong><\/p>\n

Fitch reiterated its concern that with mobile penetration rates in South Africa now well in excess of 100% in addition to intensifying competition, the slowdown in MTN’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.<\/p>\n

“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.<\/p>\n

Structural subordination<\/strong><\/p>\n

Fitch said it accepts that borrowing locally in African markets not only provides a currency hedge against locally generated cash flow, but also makes strategic sense from a group funding perspective.<\/p>\n

“However, Fitch highlights that with respect to the bondholders of MTN’s South African debt, the cash flows from the group’s non-South African operations are structurally subordinated given that MTN raises its funding on a non-recourse basis to HoldCo (MTN recently raised an additional $1.8 \u00a0billion in debt facilities on a non-recourse basis to fund capex in Nigeria).<\/p>\n

Fitch added that it takes comfort from the fact that MTN has historically been successful in circulating cash to the Holdco.<\/p>\n

More on MTN<\/h3>\n

MTN hit with Fitch downgrade<\/strong><\/a><\/p>\n

Investor confidence hurting MTN: analyst<\/strong><\/a><\/p>\n

Where to for SA telco stocks?<\/strong><\/a><\/p>\n

Vodacom beats SA credit rating blues<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Fitch Ratings has assigned MTN Group a long term foreign currency issuer default rating of ‘BBB’, with a stable outlook.<\/p>\n","protected":false},"author":10,"featured_media":11559,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34],"tags":[2510,26,28],"class_list":["post-40256","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mobile","tag-fitch","tag-headline","tag-mtn"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/40256","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=40256"}],"version-history":[{"count":9,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/40256\/revisions"}],"predecessor-version":[{"id":40314,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/40256\/revisions\/40314"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/11559"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=40256"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=40256"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=40256"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}