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MTN’s National Long-Term Rating of AA(zaf) has been lowered to AA-(zaf) because of the cash generation from weak non-investment graded countries which heightens its risk profile.
Fitch deems the group “unstable”, confirming its National Short Term Rating at –F1+ (zaf), as well as an unsecured debt rating.
MTN is currently one of the operators bidding for one of two available telecommunications licences in Myanmar and has previously said they are looking at spending up to US$8 billion on acquisitions.
MTN shares fell 1.45 per cent yesterday (Wednesday), indicating a ZAR2.55 (US$0.25) drop to ZAR173.20 (US$17.25) on the Johannesburg Stock Exchange (JSE) from its former peak at ZAR185.90 (US$18.51).
MTN’s fund from operation (FFO) is expected to perform on or below 1.5x over short to medium term.
Fitch said: “We also project pre-dividend free cash flow to sales to improve following two years of network investment in Nigeria and trending higher than eight per cent over the short to medium term,”Reuters reported.
However, MTN has sufficient financial flexibility for spending network quality and coverage, thereby retaining its leading market shares.
Nigeria has been revealed as the largest cash flow contributor, comprising 38 per cent of consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA).
“While such countries typically have good mobile prospects given low mobile penetration rates and non-existent fixed line infrastructure‚ the operations are susceptible to political instability and unpredictable regulatory authorities,” Fitch said.
South Africa’s mobile penetration rates have surpassed the 100 per cent mark, increasing competition in the country.
MTN’s delay in operations will push cash flow reliance further with regards to non-South African operations towards debt service at the Holding Company (HoldCo) level.
In-market consolidation is expected to occur in South Africa, as well as cross-continental.
HumanIPO reported last month on MTN’s negotiations over acquiring an Indian company to strengthen its Asian market influence.