Fitch Ratings has downgraded MTN Group Limited's (MTN) National Long- Term Rating to 'AA-(zaf)' from 'AA(zaf)'.
Fitch in a statement in Johannesburg affirmed the National Short-Term Rating at 'F1+(zaf)' and also affirmed MTN Holdings (Pty) Ltd's senior unsecured debt rating at 'AA-(zaf)'.
The downgrade reflects the group's heightened business risk profile as a result of its growing reliance on cash generated from weak non-investment grade countries while the Stable Outlook reflects the group's on-going strong cash generation and conservative leverage metrics, according to Fitch analysts.
Fitch said key ratings drivers include MTN's Adequate Financial Flexibility as it expects MTN's fund from operations (FFO) lease-adjusted leverage to trend at or below 1.5 over the short to medium term.
"In addition, we also project pre-dividend free cash flow to sales to improve following two years of network investment in Nigeria and trending higher than eight per cent over the short to medium term.
This provides MTN with an adequate level of financial flexibility to enable the group to spend on network quality and coverage and thus retain its all-important leading market shares.
On the Country Risk assessment, Fitch said: "MTN's business risk profile is heightened through its operational exposure to non-investment grade countries.
In particular the group's largest contributor of cash flow is Nigeria ('BB-'/ Stable), which comprises 38 per cent of consolidated EBITDA (Earnings before interest, taxation, depreciation and amortisation).
"While such countries typically have good mobile prospects given low mobile penetration rates and nonexistent fixed line infrastructure, the operations are susceptible to political instability and unpredictable regulatory authorities".
The ratings agency also based its rating on maturing South African Markets pointing out that with mobile penetration rates in South Africa now well in excess of 100 per cent in addition to intensifying competition, the slowdown in the group's South African operations will place increasing reliance on cash flow growth from non- South African operations to service debt at the Holding Company) level."
National Mirror