Fitch restores hope in Telecom

International ratings agency Fitch has dropped its preliminary warning signs over Telecom Namibia, affirming its confidence in the telecommunications provider’s ability to honour is financial obligations. The statistical ratings organisation on Friday announced its local currency issuer default rating for TN at BB+, and its national long-term rating at A-. Both grades indicate a stable outlook, and resulted in a removal of the company from the agency’s ‘Rating Watch Negative’ – announced in July while the organisation contemplated possible lowering of Telecom’s credit rating. The agency then cited cash-flow impediments, which it expected to hamper TN’s operations, as well as the high execution risk associated with the company’s investment in mobile networks, as drivers. In a statement released to the media, Fitch recognised a N$400 million equity injection from TN’s 100% shareholder, Namibia Post and Telecom Holdings Ltd, with that entire amount applied to debt reduction. “The affirmation and resolution of the RWN reflects our view that timely state support was forthcoming from the parent as TN faced a liquidity cliff in August 2015 as the bonds matured,” the Fitch statement reads. Other contributors to the agency’s restored faith was TN’s pending eight-point turnaround strategy, aimed at improving cash flow, reducing debt, increasing data usage, stabilising the organisation’s billing platform and improving customer service. “Fitch believes TN’s management, NPTH’s board and the Minisry of ICT have acknowledged the shortcomings of the company’s mobile strategy. We expect the turnaround strategy will be focused on the fixed-line network and fibre backbone, and move away from an aggressive mobile coverage plan,” the agency said. Telecom’s weaker mobile coverage compared to rival Mobile Telecommunications Ltd (MTC) would not result in significant revenue uplift, and is not expected to feature as a key driver for growth. Focusing on its fixed line networks and fibre backbone, Fitch suggests, would allow TN to increase utilisation in the subsea West African Cable System (WACS), and improve its mobile data services in major population centres. “As TN has refocused the strategy, high capital expenditure in the mobile segment will cease,” the agency said, noting that total capex stood at N$1.2 billion between 2011 and 2014. “From 2015 to 2018, Fitch forecasts capex will be approximately N$600 million,” it said. “Fitch believes the refocused strategy will result in a faster stabilisation of the business. “We expect N$59 million of positive free cash flow in 2015, driven by a recovery in underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) margins to 17%... from 8.2% in 2014, together with a reduction in 2015 capex.” Telecom Namibia’s funding requirements were set at N$460 million over the next 24 months. DENVER ISAACS