Madrid, June 13, 2017 -- Moody's Investors Service (Moody's) has today downgraded MTN Group Limited's
(MTN or Group) senior unsecured notes issued by MTN (Mauritius) Investments
Limited to Ba1 from Baa3. Concurrently, Moody's has assigned
MTN a Ba1 corporate family rating (CFR) and a Ba1-PD probability
of default rating (PDR) and has withdrawn MTN's long-term
Baa3 issuer rating, in line with the rating agency's practice for
corporates with non-investment-grade ratings. Please
refer to the Moody's Investors Service's Policy for Withdrawal of Credit
Ratings, available on its website, www.moodys.com.
The outlook is changed to stable from negative.
Today's rating action follows the weakening of the South African government's
credit profile, as captured by Moody's rating action on the sovereign
rating on 9 June 2017. For further information, refer to
the sovereign press release
https://www.moodys.com/research/-PR_367769
A full list of affected ratings is provided towards the end of this press
release.
RATINGS RATIONALE
The downgrade of MTN's rating to Ba1 from Baa3 was driven by the
downgrade of the South African sovereign bond ratings to Baa3 negative,
which reflects the weakening credit profile of South Africa, a key
input into our assessment of MTN's overall rating position. MTN
is facing a number of headwinds in its key markets, South Africa
(Baa3 negative) and Nigeria (B1 stable), including weak macro-economic
environments, regulation challenges, local currency weakness
and dollar shortages (in Nigeria), which has negatively impacted
MTN's overall performance and resulted in weaker credit metrics.
In the absence of more conservative financial policies, credit metrics
will remain under pressure given Moody's expectation these macroeconomic
headwinds are likely to persist for the next 12 to 18 months.
MTN's global scale CFR of Ba1 and national scale CFR of Aa3.za
reflect the company's strong brand and position as the number two operator
in the maturing South African market (which contributes approximately
29% of revenues and 26% of adjusted Group EBITDA) as well
as its leading market position in most of the 22 countries in which it
operates, including Nigeria (which contributes around 32%
of revenues and around 40% of adjusted Group EBITDA). The
ratings are further supported by the Group's overall high EBITDA margin
(43% as of financial year ended (FYE) 31 December 2016 as adjusted
by Moody's) and positive net subscriber growth driven by low/medium
wireless penetration levels in most of its markets.
The ratings remain primarily constrained by (1) the risks, including
political and regulatory, associated with the less mature and/or
unpredictable nature of MTN's markets outside South Africa; (2) moderate
leverage and interest cover as measured by debt to EBITDA at 2.9x
and (FFO + interest expense)/ interest expense at 3.3x;
(3) its high operating and EBITDA exposure to Nigeria (B1 stable);
and (4) the challenges on the Group's ability to up-stream
dividends and management fees over the long-term, as experienced
from its operations in Nigeria, Syria (unrated), Sudan (unrated).
All data points are as of the financial year end (FYE) to 31 December
2016 and credit metrics are according to Moody's standard definitions
and adjustments.
Moody's views MTN's liquidity as good for the next 12-18
months with internally generated cash flows and sufficient undrawn committed
facilities to meet the capital investments in Nigeria, South Africa
and Iran, as well as the company's dividend pay-out.
Moody's is closely monitoring MTN's inability to upstream
dividends from MTN Nigeria (FY2014 represented around 49% of dividends
and management fees from operating subsidiaries), its funding requirements
of MTN South Africa and dividend payments to equity shareholders and the
impact this will have on MTN's liquidity profile and credit metrics.
The stable outlook reflects our expectation that MTN will preserve its
current market positions and current operating margins as well as maintain
a strong liquidity profile over the next 12 to 18 months. Furthermore,
the Ba1 rating position adequately captures the current challenges faced
in its key markets South African and Nigeria as well as the repatriation
constraints faced by MTN Nigeria, resulting in MTN being more reliant
on cash flows outside its key markets.
In the absence of improving credit profiles within the major markets in
which MTN operates (such as South Africa, Nigeria, Iran and
Ghana), MTNs rating is unlikely to be upgraded to Baa3. However,
Moody's would consider an upgrade if MTN re-establishes a
track record of dividends being up-streamed from key markets such
that total debt to EBITDA on a consolidated or at MTN holdings level were
to trend towards 1.5x and MTN's consolidated EBITDA margin
was on an improving trend.
The rating could be downgraded following (1) lower up-streaming
of dividends / cash flows from MTN's non-South African operations
which might result in higher leverage and weaker liquidity developing
over time at the MTN holdings level; (2) further weakening of the
sovereign credit profiles in the key markets (such as South Africa (Baa3
negative), Nigeria (B1 stable), Iran (unrated) and Ghana (B3
stable)); (3) failure to maintain a balanced debt profile at the
MTN Group level; (4) sustained loss of market share or material declines
in operating margins in its key markets; (5) event risk associated
with a material acquisition or other corporate activity that negatively
impacts the company's existing or targeted leverage ratios;
or (6) a continuous weak liquidity profile at the holding level.
Quantitatively, downward pressure would arise if MTN's consolidated
EBITDA margin was sustained below 35% and/or total debt to EBITDA
on a consolidated basis or in MTN Nigeria or MTN South Africa or at MTN
holdings level were to rise sustainably above 3.5x.
List of affected ratings:
Assignments:
..Issuer: MTN Group Limited
.... Corporate Family Rating, Assigned
Ba1
.... NSR Corporate Family Rating, Assigned
Aa3.za
.... Probability of Default Rating,
Assigned Ba1-PD
Downgrades:
..Issuer: MTN (Mauritius) Investments Limited
....Backed Senior Unsecured Regular Bond/Debenture,
Downgraded to Ba1 from Baa3
Withdrawals:
..Issuer: MTN Group Limited
.... LT Issuer Rating, Withdrawn ,
previously rated Baa3
.... NSR LT Issuer Rating, Withdrawn
, previously rated Aa3.za
Outlook Actions:
..Issuer: MTN Group Limited
....Outlook, Changed To Stable From
Negative
..Issuer: MTN (Mauritius) Investments Limited
....Outlook, Changed To Stable From
Negative
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.
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 May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.
The Local Market analyst for these ratings is Dion Bate, +27
(11) 217-5472.
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 236 million, as of 31 March 2017. Its key markets,
South Africa (Baa3 negative) and Nigeria (B1 stable), combined contribute
66% to consolidated EBITDA.
As at 31 December 2016, MTN reported Group consolidated revenue
and adjusted EBITDA of ZAR147.9 billion (approximately USD10.1
billion) and ZAR64 billion (approximately USD4.4 billion),
respectively.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Carlos Winzer
Senior Vice President
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
Client Service: 44 20 7772 5454
David G. Staples
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
