S&P rates MTN as junk over Nigerian troubles

The troubles of communications giant, MTN, in Nigeria has caused it to be downgraded to junk by the international ratings agency, Standard and Pauls (S&P).

 

According to a report by Independent Online, the ratings agency in a statement released over the weekend, said this follows its downgrade of Nigeria in the middle of last month further into junk.

 

The company’s latest rating reflects increased country risk in Nigeria, MTN’s largest market.

 

According to the agency, “In our view, Nigeria’s economy has weakened due to a marked contraction in oil production, a restrictive foreign exchange regime, and delayed stimulus. MTN has material exposure to Nigeria and South Africa.”

 

S&P said it considered MTN’s exposure to potential legal and regulatory risks and its ability to maintain sufficient liquidity in a sovereign default scenario, adding, that while MTN’s debt ratio is expected to worsen, it expects improvement as reinstatement of regulatory revenues in Nigeria, increased data revenues, and improved device sales in South Africa improve.

 

It stated that the company could be lowered if risk increased materially, even as it views MTN’s debt as positive as it is modest and assumes it will reduce shareholder returns and capital expenditures (capex).

 

It also noted that given MTN’s NCC fine obligation and limited ability to source hard currency in Nigeria (because of foreign exchange controls), “Still, we expect positive, albeit very low, discretionary cash flow.”

 

Read also: MTN borrows N330bn to pay Nigerian fine

 

The rating agency also noted that its assessment of MTN’s business risk profile is supported by the group’s leading market positions in 15 of the 22 countries where it operates; geographic diversity; licences for third-generation and long-term evolution technology; more than 230 million subscribers, and growing markets that provide potential for continued, albeit unpredictable, revenues and operating profit growth.

 

“We could consider an upgrade if risk arising from country exposure abated. For example, this could occur if we upgraded Nigeria or South Africa and the resulting blended sovereign rating rose to ‘BB’, or if we believed MTN’s ability to withstand a sovereign stress had improved materially,” S&P  said.

 

MTN’s stock has declined by 29 per cent over the past 12 months amid concern over the fine slmmed on it by NCC, and a subscriber base of 233 million that did not grow in the six months through June.

 

The firm and its subsidiaries have $3.2 billion of debt and interest payments due by the end of July next year, including a $2.75 billion bridge-term loan, a 2 billion-rand senior unsecured loan and 1.25 billion rand of bonds.

 

NCC had fined the company heavily for failure to meet deadlines set on registration of its SIM cards used in Nigeria.

 

 

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