Naspers disappointed by Fitch ratings downgrade

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Cape Town - Naspers [JSE:NPN] does not agree with Fitch's rating downgrade, according to Meloy Horn, head of investor relations at Naspers.

"We are quite disappointed with the rating downgrade as we do not agree with Fitch’s methodology of excluding the value of our listed assets in their assessment of risk," she told Fin24 on Wednesday.
 
"The bottom line is that the total market value of our investments in Tencent and Mail.ru (both listed) is $55bn and our net debt reported at the end of the 2014 financial year was only $1.5bn."

Credit rating agency Fitch on Wednesday cut its rating on Naspers' senior unsecured debt to non-investment grade or "junk status".

The agency cited a deterioration in the profitability of Naspers due to hefty investment in development.

Commenting on the cut, economist Mike Schüssler said Naspers may change its strategy on investments.

“Naspers may now reconsider big investment spending and rather focus on growing immediate revenue and medium term revenue and not just long term abilities to grow revenue,” he said.

However, Horn said the pressure on earnings and cashflow is a short-term issue related to the company's strategy to pursue long-term growth opportunities in e-commerce and digital terrestrial television (DTT) organically.

This means elevated levels of development costs are expensed through the income statement and thus reduce profitability.

"We remain committed to regaining an investment grade rating again in future when our investments in these new opportunities start generating returns," said Horn.   

"Given that there is no immediate need for new debt and no major refinancing before 2017, we believe this downgrade will have a limited impact on our financing position and borrowing costs in the near future."

She said Naspers still has substantial headroom in terms of its current facilities to fund its business plans.

"At the end of the 2014 financial year we had $1.7bn in offshore cash and RCF facilities," she said.

Drikus Combrinck, an independent market analyst, told Fin24 the downgrade does not necessarily say anything about Naspers' underlying investments.

"So this rating does not change much about the current valuation of the company,” he said.

Shares in Naspers was not negatively affected by Fitch's announcement. It was trading up at 1.26% at R1 433.98 when the market closed on Wednesday.
- Fin24

* Fin24 is part of Media24, a subsidiary of Naspers.

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