S&P downgrades MTN amid Nigeria woes

MTN (Duncan Alfreds, News24)
MTN (Duncan Alfreds, News24)

Johannesburg - Ratings agency Standard & Poor’s (S&P) has downgraded MTN’s [JSE:MTN] credit rating and put the mobile network on a watch negative amid a $5.2bn fine in Nigeria.

S&P said on Thursday that it’s lowering its ratings on MTN from ‘BBB’ and ‘zaAA+’ to ‘BBB-’ and ‘zaAA-’. S&P also put MTN on a CreditWatch with negative implications, meaning that it could downgrade MTN if its liquidity position and credit metrics weaken further.

This is after it emerged this week that the Nigerian Communications Commission (NCC) has fined MTN 1.04 trillion naira ($5.2bn; R71bn) related to delayed disconnections of unregistered subscribers.

The NCC said MTN has until November 16 to pay the fine, reports Bloomberg.

“The downgrade primarily reflects the heightened regulatory and country risk in Nigeria, as well as the company's reduced liquidity cushion and weaker-than-expected operating results in the first half of 2015, due in part to increased currency volatility,” said S&P.

S&P further explained that MTN’s business profile has increased in risk amid a more challenging situation in the 22 Mideast and African markets where it operates and has over 220 million subscribers.

“The group's revenues are exposed to increasing pressure from intense price competition, regulatory changes, and a weaker economic environment in several of its markets,” said S&P.

“In the group's half-year results to June 30, 2015, reported revenues declined by 4.9% and reported EBITDA (Earnings before interest, tax, depreciation and amortisation) fell to 43.7% from 46.8%.

“Furthermore, MTN has operational concentration in high-risk regions such as Nigeria, Ghana, Sudan, Syria, and Afghanistan,” said S&P.

S&P said it aimed to resolve the CreditWatch within the next 90 days, once it has clarity on the final size and ultimate payment timing of the regulatory fine in Nigeria.

It could also lower the ratings if the regulatory fine is paid in the next financial year, MTN is unable to arrange financing, the company’s liquidity weakens and if adjusted debt to EBITDA rises higher than 1.5x for a prolonged period, said S&P.

“We could affirm the ratings if the regulatory fine only temporarily increases MTN's adjusted leverage by 1.0x, with modest deleveraging prospects in the ensuing 12 months,” said the ratings agency.

The announcement from S&P comes as another blow for MTN which saw billions wiped off of its market capitalisation this week in the wake of the Nigeria fine announcement by the mobile operator.

MTN’s share price in Johannesburg on Thursday October 29 closed at R155.39 which was substantially down from its five day trading peak of R192.45 on Friday October 23 at 13:30.

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