Moody's Investors Service ("Moody's") has today placed MTN Group Limited's (JSE:MTN, GSE:MTNGH) Ba1 corporate family rating (CFR), Ba1-PD probability of default rating (PDR) and the Aa3.za national scale corporate family rating on review for downgrade. Moody's has also placed the Ba1 rating on all the senior unsecured notes issued by MTN (Mauritius) Investments Limited on review for downgrade.
This follows two announcements from MTN over the past few days:
On 30 August 2018 MTN announced that MTN Nigeria received a letter from the Central Bank of Nigeria (CBN) alleging that Certificates of Capital Importation (CCI) issued in respect of the conversion of shareholder loans in MTN Nigeria to preference shares in 2007 had been improperly issued. As a consequence they claim that historic dividends repatriated by MTN Nigeria between 2007 and 2015 amounting to $8.1 billion need to be refunded to the CBN. MTN contends that they provided the necessary documentation on the conversions to preference shares and that all dividend repatriations to date were done against the equity CCI's.
On 4 September 2018 MTN announced that the Nigerian Attorney General (NAG) has given notice to MTN Nigeria of an intention to recover $2 billion in taxes relating to the importation of foreign equipment and payments to foreign suppliers over the last 10 years. This compares to MTN Nigeria's internal assessment and payment of $700 million over the same period.
RATINGS RATIONALE
MTN's ratings have been placed on review for downgrade to reflect the uncertainty around the potential implications of the recent CBN and NAG announcements on MTN's credit profile. MTN's management has indicated that both allegations are without merit and will be engaging with the relevant authorities to defend its position and to get more clarity on some of the requests being made. As such, there remains a range of possible outcomes which will have different consequences on MTN's credit profile. Accordingly, Moody's will monitor the developments and will consider the credit implications as events unfold. The review will focus on the impact on MTN's liquidity profile and credit metrics as well as the implications on the Group should this be a drawn out process.
In the absence of the $8.1 billion refund demand and potential $1.3 billion tax liability shortfall, MTN has sufficient liquidity to repay approaching debt maturities over the next 12 to 18 months with the next sizable refinancing wall only in 2021. There is also sufficient covenant headroom under its revolving credit facilities, with the tightest being leverage ratio covenant (consolidated total net borrowings(net cash)/Adjusted Consolidated EBITDA) at 1.59x as of 30 June 2018 compared to a threshold of 2.5x.
MTN Group Limited, 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 (No. 1 or 2) in 22 African and Middle Eastern countries with a total subscriber base of 223 million, as of 30 June 2018. Its key markets, South Africa and Nigeria, combined contribute 66% to consolidated EBITDA.
For the last twelve months to 30 June 2018, MTN reported Group consolidated revenue of ZAR130.8 billion (approximately USD10.2 billion) and Moody's adjusted EBITDA of ZAR54.9 billion (approximately USD4.2 billion).
LIST OF AFFECTED RATINGS
On Review for Downgrade:
..Issuer: MTN (Mauritius) Investments Limited
....BACKED Senior Unsecured Regular Bond/Debenture, currently Ba1
..Issuer: MTN Group Limited
....Probability of Default Rating, currently Ba1-PD
....Corporate Family Rating, currently Ba1
....NSR Corporate Family Rating, currently Aa3.za
Outlook Actions:
..Issuer: MTN (Mauritius) Investments Limited
....Outlook, Changed To Rating Under Review From Stable
..Issuer: MTN Group Limited
....Outlook, Changed To Rating Under Review From Stable
The principal methodology used in these ratings was Telecommunications Service Providers published in January 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
