More troubles for MTN Group

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Fitch Revises MTN Group's Outlook to Negative on Nigerian Fine
Published on: 2nd Nov 2015

Fitch Ratings has revised the Outlook on MTN Group's debt ratings to Negative from Stable and affirmed the IDR at 'BBB'.
­The Negative Outlook reflects the risk of a significant cash outflow due to a substantial fine imposed on MTN's Nigerian operations, which could increase leverage and pressure MTN's credit metrics. These developments in Nigeria highlight the risk MTN is exposed to in operating in a variety of emerging market countries.
Nigerian Fine
MTN has announced that NCC, the Nigerian telecoms regulator, has imposed a fine equivalent to USD5.2bn on MTN Nigeria. Fitch said that it understands that management remains in discussion with NCC as to the size and timing of the payment of the fine. If the fine is confirmed as initially announced by the group and is payable in the short term, it could result in negative rating action.
Reduced Dividends from MTN Nigeria
In MTN's 3Q15 results call, management highlighted the difficulties the group faces in remitting dividends from MTN Nigeria to the parent company. This is due to the Nigerian central bank's policy of maintaining the Naira peg to the US dollar, which is limiting foreign exchange liquidity. The liquidity squeeze arising from this has been short term. However, if there is no evidence of an improvement in liquidity from the Nigerian operations, it will result in negative rating pressure.
Emerging Market Risk Exposure
With strong growth in recent years, Nigeria now accounts for a larger proportion of MTN's profits. MTN Nigeria accounts for almost half of the group's EBITDA, and a greater proportion of its free cash flow. The fine in Nigeria underlines some of the wider risks associated with emerging markets from macroeconomic risks such as currency volatility to industry specific regulatory developments.
Adjustments to Dividend Policy
Given MTN's strong pre-dividend FCF generation, and the significant level of dividends paid (ZAR20.5bn in 2014), MTN has the option to alter its dividend policy to reduce leverage and manage its credit profile in the event the fine is enforced and leads to a material cash outflow. However, a significant reduction in dividends would be needed to offset a loss of dividends from Nigeria to ensure MTN's ability to service the debt at a holding company would be unimpaired.


Leading Market Position in Iran
The group has a leading market position in Iran with significant reserves that have not been remitted due to sanctions. There could be a significant dividend payment from operations in Iran on resumption of normal operations, even after taking into account further necessary capex investment. The timing and size of this payment to the holding company is not clear at this stage but could be positive for the rating in the next 12-18 months. Nonetheless, the restriction further emphasises the emerging market risk the overall group is increasingly exposed to.
News Source: http://www.cellular-news.com


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