The ratings agency said on Thursday that it had changed its outlook on Naspers's BBB-credit rating to negative, indicating it may cut the media group's rating to BB+ or worse within six months to two years.
BBB- is the lowest rating considered investment grade. Everything under that is generally called "junk", and the mandates of many pension fund management firms prohibit them from holding corporate bonds that have fallen into junk status.
"The outlook revision reflects our view that Naspers' profitability will weaken in its 2017 fiscal year ending-March 31, following its lacklustre reported revenues and profitability in 2016," S&P said in its analysis of Naspers.
In June, Naspers reported a 20% drop in aftertax profit of 1.26bn for its past financial year. Its pay-TV subscriber base in SA and neighbouring countries fell by 288,000 in its past financial year. Naspers, therefore, finds itself squeezed between lower revenue and rising costs, because it pays dollars to licence its programmes while earning rand. "We understand that Naspers has taken measures to defend its subscriber base in the region, and to reduce its cost base by changing its offering of pay-TV packages and shifting towards more local content.
"In our view, these steps, teamed with gradually declining development spending, will mitigate the slowing organic growth in the video entertainment business," the note said.
Regarding its e-commerce ventures, S&P said this division was unlikely to turn profitable within the next two years.
If not for Naspers's stakes in Chinese internet group Tencent and Russia's Mail.ru, S&P said it would rate the group BB-.
The ratings agency forecasts that the internet and media group's revenue will fall 15%20% in this financial year due to the drop in revenues in video entertainment and a negative foreign exchange effect, with a return to growth in 2018 in the 8%-14% range, owing to a recovery in video entertainment and growth in e-commerce.
Source: Business Day
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