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Johannesburg - Fitch Ratings has assigned MTN Group [JSE:MTN] a Long-Term Foreign Currency Issuer Default Rating of 'BBB'‚ with a Stable Outlook.
Fitch said the ratings reflected MTN's leading market position in most of the markets in which it operated. The strong position allowed 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.
“Fitch 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 said.
MTN's business risk profile was heightened through its operational exposure to non-investment grade countries. In particular the group's largest contributor of cash flow was Nigeria ('BB-'/Stable)‚ which comprised 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.
“With mobile penetration rates in South Africa now well in excess of 100% in addition to intensifying competition‚ the slowdown in the group'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.
"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 added.
