Fitch Ratings has assigned the globalizing MTN Group healthy rating, a Long-Term Foreign Currency Issuer Default Rating of ‘BBB’, Stable Outlook, but issued a mild caution about the South African situation.
The global credit rating agency said 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 level. “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”.
Fitch said its MTN rating reflect the group’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”.
From its humble South African beginnings MTN has expanded to become the largest operator in the African continent and has made inroads into the Asian market.
MTN has ventured into markets which were considered no go zones and has been able to print money from them. These included ventures into Nigeria, Ghana, Syria, Iran, Guinea-Bissau, Afghanistan, Yemen and Sudan. The group operates across 22 countries and boasts a subscriber base of about 195 million. Revenue is topping R120bn.
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. 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. This 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.
The rating agency added that MTN’s business risk profile is heightened through its operational exposure to non-investment grade countries. In particular the group’s largest contributor of cash flow is Nigeria (‘BB-‘/Stable), which comprises 38% of consolidated EBITDA. 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.
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