Lagos, Nigeria, 22 June 2021 – GCR Ratings (“GCR”) has upgraded the national scale long-term Issuer rating of MTN Nigeria Communications Plc to AAA(NG) and affirmed the national scale short-term Issuer rating of A1+(NG), with the Outlook accorded as Stable. Concurrently, GCR has upgraded the national scale long term Issue rating of MTN Nigeria Communications Plc’s N110bn Series 1 Senior Unsecured Bond to AAA(NG), with the Outlook accorded as Stable.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|MTN Nigeria Communications Plc||Long Term Issuer||National||AAA(NG)||Stable Outlook|
|Short Term Issuer||National||A1+(NG)|
|N110bn Series 1 Senior Unsecured Bond||Long Term Issue||National||AAA(NG)||Stable Outlook|
The ratings accorded to MTN Nigeria Communications Plc (“MTN Nigeria” or “the Company”) reflect its very strong competitive position as the leading provider of telecommunication services in Nigeria, as well as its strong earnings and cash flow which has supported a robust financial profile.
MTN Nigeria’s competitive position is underpinned by its well-established brand, broad spectrum of licences, substantial infrastructural and network coverage, which allows to monetise excess capacity and share infrastructure with other domestic operators. The Company is a subsidiary of MTN International (Mauritius) Limited, with the ultimate parent company being MTN Group Limited (“the Group”). The Group has developed into a leading regional cellular telecommunication services provider, with operations in 21 countries in Africa and Middle East, and a subscriber base of over 274 million. MTN Nigeria is viewed as operationally integral to the Group, accounting for 29% of its subscriber base (FY20), and around 30% each of revenue and EBITDA. In view of the extensive investment by the Group in Nigeria, GCR has factored in group support into the rating. Albeit even on a standalone basis, MTN Nigeria would reach the highest national scale rating band.
Management and governance is currently viewed as neutral to the ratings. However, GCR notes the ongoing the USD1.3bn tax dispute between the Company and the Nigeria revenue authority, as well as previous regulatory infringements that have led to large fines. Should further matters arise, GCR could make a negative ratings adjustment to reflect the downside risk to operations.
MTN Nigeria has demonstrated sustained earnings progression, with a five-year CAGR of 14.1% to FY20. Similarly, Its EBITDA margin remained strong around 50%-53% in the recent period, trending above international peers. GCR expects MTN Nigeria to continue to maintain strong revenue growth given its growing infrastructure, and Nigeria’s favourable demographic. However, the continuous devaluation of the Naira is expected to increase pressure on the unhedged operating and capital costs, as a large component of spend relates to USD denominated imports, impacting the earnings margins.
Gross debt increased from N904.6bn at FY19 to N1,219.7bn at 1Q FY21, comprising borrowings from both local and international lenders, Commercial Paper and lease liabilities. Despite the growth in debt level, net debt to EBITDA has remained conservative around 1.3x in recent period and operating cash flow of debt has trended above a strong level of 40%. EBITDA coverage of net interest has been curtailed around 5x–7x, from much higher levels previously, on account of substantial interest accruing from the lease commitments. Subsequent to 1Q FY20, the Company registered a N200bn Bond Issuance Programme, and successfully raised N110bn in Series 1 Senior Unsecured Bond Issue in May 2021. While leverage metrics are expected to remain strong, with a satisfactory covenant headroom, downside pressure is expected to come from higher capex costs amid the continuous Naira devaluation and the aggressive infrastructure rollout.
The Company’s liquidity assessment is somewhat constrained by high capex requirements, which imply an outlay of over N300bn per annum. This is further exacerbated by the ongoing high dividend payments. That said, liquidity is underpinned by the expectation that cash flow will remain strong, supported by the strong access to capital, with latter backed by well-established relationships with leading domestic banks, international financiers, development finance institutions. Moreover, MTN does have the flexibility to shore up liquidity, if necessary, by withholding some capex or dividends.
Being senior unsecured debt of MTN Nigeria, the Series 1 Bond ranks pari passu with all other senior unsecured creditors. As such, the Bonds will bear the same national scale long term rating as that accorded to MTN Nigeria. Accordingly, any change in MTN Nigeria’s long term Issuer rating would impact the Bond rating.
The Stable Outlook reflects GCR’s view of MTN Nigeria’s leading market position, combined with ongoing capital investments which will allow the Company to maintain its robust earnings and cash flow, and supporting strong financial profile.
A national scale upgrade is not possible as MTN Nigeria’s long-term and short-term ratings are the highest possible ratings on GCR’s national rating scale. However, downward rating pressure could arise from a.) a materially adverse socio-pollical or regulatory developments which heightened earnings risk, b.) higher currency risk which resulted in higher operating cost and significant decline in margins and c) unduly elevated capex cost which necessitate additional funding requirements, leading to pressure on debt service metrics.
|Primary analyst||Femi Atere||Senior Analyst|
|Lagos, Nigeria||Femi@GCRratings.com||+234 1 9049462|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||Matthewp@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Corporate Entities, May 2019|
|GCR Ratings Scales, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, February 2021|
|GCR Nigeria Corporate Sector Risk Scores, February 2021|
MTN Nigeria Communications Plc
|Rating class||Review||Rating scale||Rating||Outlook/Watch||Date|
|Long term Issuer||Initial||National||AA(NG)||Stable||June 2019|
|Short Term Issuer||Initial||National||A1+(NG)|
|Long term Issuer||Last||National||AA(NG)||Stable||July 2020|
|Short Term Issuer||Last||National||A1+(NG)|
|Long Term Issue||Initial/Last||National||AA(NG)(IR)||Stable||January 2021|
RISK SCORE SUMMARY
|Country risk score||3.75|
|Sector risk score||3.50|
|Management and governance||0.00|
|Leverage & capital structure||1.75|
|Total Risk Score||14.00|
|Credit Rating||See GCR Rating Scales, Symbols and Definitions.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Diversification||Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding. In insurance, it refers to an individual or company’s vulnerability to various risks|
|Interest Cover||Interest cover is a measure of a company’s interest payments relative to its profits. It is calculated by dividing a company’s operating profit by its interest payments for a given period.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|Long Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Rating horizon||The rating outlook period, typically 18 to 24 months.|
|Risk Management||The process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Short Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Short Term||Current; ordinarily less than one year.|
SALIENT POINTS OF ACCORDED RATINGS
GCR affirms that a.) no part of the ratings process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit ratings have been disclosed to MTN Nigeria Communications Plc. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.
MTN Nigeria Communications Plc participated in the rating process via tele-conferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from MTN Nigeria Communications Plc and other reliable third parties to accord the credit ratings included:
- 2020 audited annual financial statement, and prior four years annual financial statements;
- A three-month management accounts to 31 March 2021;
- Internal and/or external management reports;
- Industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties;
- Information specific to the rated entity and/or industry was also received.