Fitch rates Telecom Namibia slightly better

Fitch maintained its negative outlook for Telecom Namibia (TN) in its recent rating.

14 November 2017 | Business

TN's fixed-mobile convergence strategy will not be the key driver for growth. – Fitch Ratings

Jo-Maré Duddy – Although Fitch Ratings has upped Telecom Namibia’s long-term local-currency issuer default rating (IDR) from BB to BB+, the creditworthiness of the local SOE is still regarded as speculative.

In Fitch terms, all BB ratings “indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time”. BB ratings also mean that “business or financial flexibility exists that supports the servicing of financial commitments”. The latter reflects the strong ties between TN and the Namibian government.

An equity injection of N$400 million from the government in TN’s 2015 financial year, coupled with the implementation of an eight-point turnaround strategy counted in the SOE’s favour. TN's ownership links with the West African Cable System's (WACS) sub-sea cable landing rights, the potential transfer of property from Namibia Post and Telecom Holdings Limited (NPTH) to TN in the 2018 and 2019 financial years, and important network links to local government departments, schools and hospitals also helped.

“However, the legal links are limited, with no sovereign-guaranteed debt and no cross-default clauses with the sovereign,” Fitch says.

Standalone

TN’s standalone rating at Fitch was upgraded from B- (highly speculative) to BB-.

Fitch credits the move to the turnaround strategy, “which focused on improving cash flow, reducing debt and improving coverage and customer service while stabilising the billing platform”.

The N$400-million injection by the government was used to reduce TN’s debt. In addition, the N$200 million proceeds from the sale of a 10.5% equity stake in Neotel (Pty) Ltd to Liquid Telecom were received in the 2017 financial year and also applied to debt reduction, Fitch says.

“At end-September 2016, about 75% of TN's debt was short term, which we now expect to reduce to about 30% in FY18,” the rating agency says.

Fitch says it believes the refocused strategy has reflected a turnaround for TN. “We estimate ebitda margin to average 18% over 2017-2019.”

TN has returned to positive free cash flow (FCF) in its 2016 financial year and Fitch expects this to be sustained in the rating case for 2017 to 2019.

According to Fitch, TN continues to focus on its fixed-line network and broadband services based on the strength of its national fibre backbone infrastructure.

“We expect most revenue growth to come from TN's fixed-data services, supported by its fibre backbone. TN's fixed-mobile convergence strategy will not be the key driver for growth,” Fitch says.

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