Fitch Ratings has today affirmed South Africa based MTN Group's National Long-term ratings at 'AA-(zaf)' with Stable Outlook. The affirmation reflects strong subscriber growth in MTN's markets that have relatively low mobile penetration. This has driven MTN's strong operating cash flow generation and underpinned its profitability, which in turn contributed to an improved net leverage (adjusted net debt/EBITDAR) of 0.4x in FY08 (FY07:0.6x).
However, Fitch expects elevated capex in 2009 to reduce free cash flow generation in the short-term and potentially lead to an increase in net leverage, albeit still consistent with its current ratings.
The Stable Outlook reflects Fitch's view that MTN's business profile remains well-positioned in the medium-term to weather the industry's challenges, including increasing competition in its core markets. Nevertheless, the group's financial profile benefits from strong operating cash flow generation, relatively low leverage and a healthy liquidity position.
The ratings also incorporate the relatively high country risk - political and regulatory - in the markets in which MTN operates. Consequently, the group's ability to repatriate cash flows to South Africa from certain jurisdictions remains a concern to Fitch, even though the company has so far demonstrated its ability to successfully repatriate cash flow to South Africa.
Fitch recognises that the potential merger with Bharti may benefit MTN's business risk profile through geographic diversification and increased scale of operations. At the same time, any potential merger transaction is likely to result in increased leverage. Nevertheless, Fitch views this possible transaction as event-risk and has not factored this into the current ratings.
MTN is one of the leading mobile operators in Africa and Middle East. It has a presence across 21 countries with a total of 90 million subscribers in 2008 (2007: 61 million).