Madrid, October 23, 2014 -- Moody's Investors Service today affirmed MTN Group Limited ("MTN" or "the
Group") Baa2 local currency global scale issuer rating and A1.za
national scale issuer rating while assigning a provisional (P)Baa2 rating
to the proposed long-term guaranteed unsecured notes to be issued
by MTN (Mauritius) Investments Limited. The proposed notes will
be irrevocably and unconditionally guaranteed by its 100% parent
company, MTN Group Limited, Mobile Telephone Networks Holdings
Proprietary Limited, MTN International (Mauritius) Limited,
MTN International Proprietary Limited, Mobile Telephone Networks
Proprietary Limited and MTN Treasury limited. The rating outlook
is stable.
"Proceeds from the bond issuance will be used for general corporate purposes,
strengthening its liquidity profile and positioning the Group to take
advantage of potential growth opportunities that may arise,"
says Dion Bate, a Moody's Vice President -- Senior Analyst
and local market analyst for MTN. Furthermore, given MTN's
current low consolidated adjusted debt to EBITDA of 0.96x an issuance
of up to USD750 million will not have a material negative impact on MTN's
credit profile.
RATINGS RATIONALE
The proposed notes are unsecured obligations and will rank pari-passu
with all other existing and future unsecured and unsubordinated debt obligations
of MTN Group Limited, including the Group's USD1 billion (ZAR10.6
billion) revolving credit facility (RCF) due 2019. The notes benefit
from irrevocable and unconditional guarantees from material subsidiaries,
including amongst others MTN's holding company, MTN Group
Limited. The (P)Baa2 rating of the proposed notes assumes that
the final transaction documents will not be materially different from
draft legal documentation reviewed by Moody's to date and that these agreements
are legally valid, binding and enforceable.
Assuming notes totalling USD 750 million are issued we expect the impact
MTN's consolidated leverage to be small (as defined as gross debt
to EBITDA and per Moody's standard adjustments) increasing from
0.96x to approximately 1.1x on a pro forma basis as of 30
June 2014. Furthermore, factoring the proposed bond issuance
into our sensitized scenarios (see MTN Credit Focus Report dated 23 October
2014 for scenario explanations) the leverage range changes to between
0.8x and 1.8x from 0.5x and 1.2x, remaining
within our current rating guidance for the Baa2 rating level.
MTN's global scale issuer rating of Baa2 and national scale issuer rating
of A1.za reflect the company's strong brand and position as the
number two operator in the maturing South African market (which contributes
approximately 27% of revenues and 21% of EBITDA, for
the last twelve months (LTM) to 30 June 2014) as well as its leading market
position in most of the 22 countries in which it operates, including
Nigeria (which contributes around 36% of revenues and around 49%
of group EBITDA, for LTM to 30 June 2014). The ratings are
further supported by (1) the Group's overall strong credit metrics in
terms of EBITDA margin, leverage and interest coverage; (2)
strong subscriber growth driven by low/medium wireless penetration levels
in most of its markets; (3) a sustainable business model; (4)
conservative leverage targets and prudent financial policies; and
(5) a track record, so far, of managing investments in emerging
markets and successfully up-streaming the majority of dividends
and management fees.
The ratings remain primarily constrained by (1) the risks associated with
the business environments in most of the markets in which MTN operates;
(2) the political and regulatory risks associated with the less mature
or unpredictable nature of MTN's markets outside South Africa; (3)
growing EBITDA contribution from Nigeria (Ba3 /stable); (4) the challenges
posed to the ability of the Group to upstream dividends and management
fees over the long term, as experienced from its Iran, Syria
and Sudan operations; and (5) some degree of event risk associated
with possible merger and acquisition activity.
LIQUIDITY
MTN's strong liquidity profile will enable the company to cover its cash
needs over the next twelve months. Cash generated by operating
activities is expected to cover capital investments in Nigeria,
South Africa and Iran, as well as the company's dividend payout
ratio of 70% (dividends divided by net income before unusual items),
as of 30 June 2014. In addition to the company's cash generation
capability, MTN has access to sizable cash balances of approximately
ZAR18.7 billion within its head office companies, as well
as ZAR11.9 billion available under its committed credit facilities,
as at 30 June 2014. Based on its healthy cash-flow generation
capabilities, existing cash balances and committed, unutilised
facilities, Moody's does not expect the group to be affected by
short-term liquidity constraints.
OUTLOOK
The stable outlook reflects our expectation that MTN's credit profile
will continue to remain strong supported by subscriber and top-line
growth trends in most of its markets. Furthermore, the outlook
assumes MTN's continued ability to upstream the majority of its cash flows
and that its liquidity profile at group and subsidiary levels remains
prudently managed.
WHAT COULD CHANGE THE RATING UP/DOWN
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 Baa1, particularly
given our expectation of stronger growth opportunities in markets outside
of South Africa.
Conversely, the developments that would most likely have negative
rating implications would be (1) a material weakening of the credit profiles
in the key markets (such as South Africa, Nigeria, Iran and
Ghana); (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, particularly in the event of
a debt financed acquisition. 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 2.5x.
MTN Group Limited (MTN) is the largest African-based mobile telecommunications
operator in terms of subscriber base and revenues. Operating since
1994, MTN has operations in 22 African and Middle Eastern countries
with a total subscriber base of 215 million, as of 30 June 2014.
With a subscriber market share of around 32% as of 30 June 2014,
MTN is the second largest wireless telecommunications operator in its
home market of South Africa. Group consolidated revenue reported
for the last twelve months ended 30 June 2014, was ZAR143.5
billion (approximately USD13.8 billion) and adjusted EBITDA was
around ZAR68.7 billion (approximately USD6.5 billion).
Please see latest Credit Opinion and associated research for further information.
Moody's last rating action was 13 December 2013 when Moody's changed the
outlook to stable from positive and affirmed the Baa2 and A1.za
issuer ratings.
The principal methodology used in these ratings was the 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".
The Local Market analyst for this rating is Dion Bate, 27-11-217-5472.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Ivan Palacios
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
David Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536
Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns (P)Baa2 to MTNs' proposed notes; outlook stable
