S&P takes MTN off watchlist for downgrade

1 Apr 2016

The threat of a downgrade to MTN's credit rating by Standard & Poor's (S&P) has been averted, sending the cellphone network's share 2.41% higher to R135.20 on the JSE yesterday. But the rating agency warned yesterday it might yet downgrade MTN, depending on the outcome of its fine in Nigeria.

Ken Banks via Wikimedia Commons

Negative outlook

S&P removed MTN from its "negative implications" watchlist of companies facing downgrades and affirmed its BBB-long-term corporate credit rating with negative outlook.

S&P said the negative outlook reflected the uncertainty regarding the final amount of the fine and increasing country risk in Nigeria and SA, which contribute 35% and 27%, of MTN's revenue respectively.

Nigeria fine

MTN faces a $3.9bn fine in Nigeria for missing a deadline to disconnect 5.1-million unregistered SIM cards. The deadline was set by Nigerian authorities trying to prevent Boko Haram militants using cellphones to coordinate attacks. The fine was initially $5.2bn. The group, which has made a 620m provision for the fine, is in discussions with the Nigerian authorities to settle the matter. MTN Nigeria has already made a 250m good-faith payment.

S&P said its affirmation of MTN's credit rating reflected its debt remaining under 1.5 times earnings before interest, tax, depreciation and amortisation.

S&P said it could downgrade MTN if the time frame for payment weakened the group's liquidity to an extent that "we do not believe MTN can cope with a sovereign stress".

Said S&P: "We could also downgrade MTN if we lowered our ratings on Nigeria or SA."

Source: Business Day

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