Fitch Ratings has cut Naspers’ debt to junk, citing a deterioration in the company\u2019s profitability.<\/p>\n
The ratings group downgraded the South Africa-based media group’s long-term and short-term issuer default ratings were lowered one level to BB+ from BBB-, and to B from F3, respectively.<\/p>\n
\u201cThe downgrade reflects the deterioration in the group\u2019s profitability mainly due to its high development spend as Naspers continues to invest in growth opportunities,\u201d Fitch said.<\/p>\n
Fitch also downgraded the senior unsecured rating to BB+ from BBB-. The outlook is stable, it said.<\/p>\n
The ratings firm noted that existing operations are performing well, but higher-than-expected investments in global e-commerce and sub-Saharan pay-TV opportunities have led us to reduce our expectations of EBITDA and free cashflow (FCF) over the next three years.<\/p>\n
“Visibility of future cash flow generation is limited and the resulting increase in leverage means that Naspers’ credit metrics are no longer compatible with an investment-grade rating,” it added.<\/p>\n
It further noted that Nasper’s equity stakes in Tencent and Mail.ru are a considerable liquidity source, which allows the ‘BB+’ rating to tolerate two years of weaker credit metrics due to high development spend.<\/p>\n
E-commerce is Naspers second-largest division but is the fastest growing and management expects it to be the main ebitda growth engine in the years ahead.<\/p>\n
“As a result of continued heavy development spend (R5.6 billion in the financial year to March 2014), this division is cash flow-negative and is unlikely to contribute to positive cash flow for at least the next 24 months,” Fitch said.<\/p>\n
It said that while some of Naspers’ businesses are currently the largest integrated e-commerce platforms in their respective countries, uncertainty remains over when this division as a whole will generate sustainable positive cash flow.<\/p>\n
More on Naspers<\/strong><\/p>\n Naspers sets sights on e-commerce and mobile<\/strong><\/a><\/p>\n