Moody's Investors Service (Moody's) has today downgraded MTN Group Limited's (MTN or Group) global issuer rating to Baa3 from Baa2, the national scale issuer rating to A2.za from A1.za and the $750 million senior unsecured notes due 2024 issued by MTN (Mauritius) Investments Limited to Baa3 from Baa2. The outlook is negative.
These actions follow the affirmation of Nigeria's Ba3 Federal Government issuer ratings and the lowering of the foreign currency bond ceiling to Ba2 from Ba1 on the 10 December 2015.
RATINGS RATIONALE
The downgrade to Baa3 captures the increased operational and sovereign risks from one of its key markets, Nigeria (Ba3 stable), where MTN Nigeria is a sizable contributor to Group EBITDA representing 48% of consolidated EBITDA (as of 30 June 2015). Furthermore, there continues to be uncertainty around the final outcome regarding the Naira 780 billion ($3.9 billion) fine imposed by the Nigerian Communications Commission (NCC) on MTN Nigeria of which payment is required by the 31 December 2015.
The downgrade of the Nigerian foreign currency ceiling reflects a somewhat higher risk that the Nigerian government would impose a moratorium on other external borrowers in the event of its own severe financial distress. While Nigeria's overall external vulnerability remains relatively low, Moody's notes that the lowering of the foreign currency bond ceiling takes into account the recent restrictions imposed by the monetary authorities to conserve the central bank's foreign exchange reserves.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects the ongoing uncertainty surrounding NCC fine and the possible impact on MTN's liquidity profile given MTN at this point does not have sufficient funds readily available to immediately pay the $3.9 billion equivalent fine. Moody's notes the challenges faced with the negotiation process between the NCC and MTN Nigeria as MTN continues to engage with the NCC. At this time, there remains a range of possible outcomes which will have different consequences on MTN's credit profile. As a result of the uncertainty it is difficult to estimate the timing and the final outcome of the discussions. Accordingly, Moody's will monitor the developments with specific focus on the speedy resolution with the NCC on the final fine amount, agreed upon terms and conditions, as well as any mitigating measures that the Group can put in place.
The outlook could be stabilised if matters surrounding the Nigerian fine are clarified and resolved with limited or manageable implications to MTN's Nigerian and Group operations as well as to their credit and liquidity profiles.
WHAT COULD CHANGE THE RATING DOWN/UP
Developments that would most likely have negative rating implications would be (1) a further weakening of the credit profiles in the key markets (such as South Africa (Baa2 stable), Nigeria (Ba3 stable), Iran (unrated) and Ghana (B3 negative)); (2) a failure to maintain a balanced debt profile at the MTN Group level in line with current expectations; (3) a sustained loss of market share or material declines in operating margins in its key markets; (4) event risk associated with a material acquisition or other corporate activity that negatively impacts the company's existing or targeted leverage ratios; or (5) lower than expected up-streaming of dividends / cash flows from MTN's non-South African operations, including Nigeria, which might result in higher leverage developing over time at the MTN Holdings level. Quantitatively, downward pressure would arise if MTN's consolidated EBITDA margin was sustained below 40% and/or total debt to EBITDA on a consolidated basis or in MTN Nigeria or MTN South Africa were to rise sustainably above 3.0x.
In the absence of improving credit profiles within the major markets in which MTN operates (such as South Africa, Nigeria, Iran and Ghana), MTN's rating is unlikely to be upgraded to Baa2, particularly given our expectation of stronger growth opportunities in markets outside of South Africa.
MTN Group Limited (MTN or the Group), based in South Africa, is the largest African-based mobile telecommunications operator in terms of subscriber base and revenues. Operating since 1994, MTN has leading market positions in 22 African and Middle Eastern countries with a total subscriber base of 233 million, as of 30 September 2015. Its key markets, South Africa (Baa2 stable) and Nigeria (Ba3 stable), combined contribute 63% to consolidated EBITDA. For the last twelve months (LTM) ended 30 June 2015, MTN reported Group consolidated revenue and adjusted EBITDA of ZAR143.5 billion (approximately USD12.5 billion) and ZAR70.5 billion (approximately USD6.2 billion), respectively.
Affected ratings:
Downgrades:
..Issuer: MTN Group Limited
.... Issuer Rating, Downgraded to Baa3 from Baa2
.... Issuer Rating, Downgraded to A2.za from A1.za
..Issuer: MTN (Mauritius) Investments Limited
....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2
Outlook Actions:
..Issuer: MTN Group Limited
....Outlook, Remains Negative
..Issuer: MTN (Mauritius) Investments Limited
....Outlook, Remains Negative
The principal methodology used in these ratings was Global Telecommunications Industry published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in June 2014 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".
