Johannesburg - The Competition
Tribunal’s R449m fine on Telkom [JSE:TKG] for abusing its dominance
in the telecommunications market is credit negative as it will reduce
cash flow and increase leverage for fiscal years ending March 2013
and 2014‚ ratings agency Moody’s warned on Monday.
The tribunal fined Telkom last week‚
but the fine was well below the Competition Commission’s
“The penalty also comes amid
depressed operating performance over the past 12 months‚” Douglas
Rowlings‚ associate analyst at Moody's‚ said.
The tribunal found that between 1999
and 2004 Telkom had refused to supply essential services to
independent value-added network services (VANS) providers and induced
customers to not deal with these VANS providers.
Moody’s said the penalty‚ assuming
Telkom did not appeal the judgment‚ would result in the company
paying R224.5m in the next six months‚ and another R224.5m in 18
Telkom plans to spend R7.5bn in capital
expenditure in the next financial year.
“With a cash balance at March 31 of
R1.168bn (plus another R2.025bn on call from repurchase agreements‚
and free cash flow for the 12 months ended in September 2011 of
R3.196bn‚ the fine payments and capex will erode the company’s
liquidity and increase leverage‚” Rowlings said.
The ratings agency estimated paying the
total fine would add pressure on the ratio of net debt to earnings
before interest‚ depreciation‚ taxes‚ and amortisation
“Management’s ability to stabilise
the continuing downward trajectory of Telkom’s ebidta margin and
interest coverage will be an important measure of the effectiveness
of its turnaround strategy‚” Rowlings said.
Telkom‚ Moody’s noted‚ had
struggled to stabilise its business amid revenue losses and margin
compression owing to intensifying competition and customers
abandoning the company’s higher-margin‚ fixed-line services for
The government’s rejection of a
proposal by KT Corporation to buy a 20% stake in Telkom would not
make things easier for Telkom‚ Moody’s noted.
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