South African recession drags down MTN credit rating

In Summary

June 14—Moody’s, the international credit rating company, has downgraded MTN Group following the South African economy […]

June 14—Moody’s, the international credit rating company, has downgraded MTN Group following the South African economy slipping into recession early this week and the availability of adequate foreign exchange in Nigeria.

However the multinational telecom was not alone as Moody’s did the same for Eskom, Sasol and Airports Company of South Africa.

Moody’s says in a statement, ‘The downgrade of MTN’s rating to Ba1 from Baa3 was driven by the downgrade of the South African sovereign bond ratings to Baa3 negative, which reflects the weakening credit profile of South Africa, a key input into our assessment of MTN’s overall rating position’.

In reply, MTN Group issued a shorter statement explaining that their downgrade is due to ‘the weakening of the South African government’s credit profile, as captured by Moody’s lowering of the South African sovereign rating to Baa3 from Baa2 on 9 June 2017’.

Business confidence in South Africa as surveyed in Rand Merchant Bank index compiled by the Bureau for Economic Research has stubbornly stayed below the key 50.0 mark. It dropped to 29 points in the second quarter from 40 points in the first quarter of 2017.

The Group has several subsidiaries across Africa, but Nigeria is its biggest market. Moody’s believes MTN is facing a number of headwinds in its key markets, South Africa (Baa3 negative) and Nigeria (B1 stable), including weak macro-economic environments, regulation challenges, local currency weakness and dollar shortages (in Nigeria), which has negatively impacted MTN’s overall performance and resulted in weaker credit metrics.

‘In the absence of more conservative financial policies, credit metrics will remain under pressure given Moody’s expectation these macroeconomic headwinds are likely to persist for the next 12 to 18 months,’ the statement reads in part.

On the other hand Moody’s views MTN’s liquidity as good for the next 12-18 months with internally generated cash flows and sufficient undrawn committed facilities to meet the capital investments in Nigeria, South Africa and Iran, as well as the company’s dividend pay-out.

Operating since 1994, MTN has leading market positions (number 1 or 2) in 22 African and Middle Eastern countries with a total subscriber base of 236 million, as of 31 March 2017. Its key markets, South Africa and Nigeria combined contribute 66% to consolidated EBITDA.

As at 31 December 2016, MTN reported Group consolidated revenue and adjusted EBITDA of approximately $10.1 billion and about $4.4 billion respectively.


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