Exposure to Nigeria could force S&P’s hand on MTN
The ratings agency has warned it could downgrade MTN overall given the risk profile of the West African country
MTN is at risk of having its debt downgraded by ratings agency S&P Global Ratings over the next 12 months if the mobile network operator increases its relative exposure to Nigeria.
MTN’s share price fell 15.10% to close at R64.95, its lowest since 2006, in response to the sharp fall in global oil prices, largely affecting the prospects of its biggest market, Nigeria.
Nigeria is Africa’s biggest oil producer and a drop in prices will weigh on the West African economy.
MTN’s rivals Vodacom, Telkom and Cell C’s largest shareholder Blue Label Telecoms were all down 3.57%, 6.34% and 4.71%, respectively, on Monday.
The outlook in Nigeria might also be clouded by the effect of the coronavirus, which has disrupted global trade and hit commodity prices.
The negative outlook for Nigeria reflects “the significant possibility of a downgrade over the next 12 months” for MTN, said S&P. This could take place if MTN’s revenue mix shifts sustainably, which would lead to “greater exposure to Nigeria — the lower rated sovereign of its two main markets”.
While it affirmed MTN’s BB+ long-term issuer credit rating, S&P warned it could downgrade the group overall given Nigeria’s risk profile.
The West African country is MTN’s most profitable market, accounting for one-third of its annual profit, but it has also been one of the most problematic after clashes with the authorities over taxes and regulatory breaches.
MTN Nigeria’s business has faced run-ins with regulators over the past five years. In 2016, MTN agreed to pay $1.7bn to settle a fine over unregistered SIM card users, two years before being embroiled in a dispute with the Central Bank of Nigeria over the repatriation of funds. MTN settled the case with a $53m payment.
In January, Nigeria’s attorney-general withdrew a $2bn tax demand against MTN Nigeria, which had been accused of not having fully paid its taxes.
SA’s rating is higher relative to Nigeria, but as the West African country produces a greater proportion of business for MTN, that risk weighs heavier on the group.
The ratings agency said this point was further emphasised by the fact that “MTN’s Nigerian business has been expanding faster than its SA business”.
For now, S&P said MTN’s economic exposures to SA, which has a foreign currency long-term rating of BB-, slightly outweighed exposures to Nigeria, with its foreign currency long-term rating of B-.
“A weaker economy will reflect on future earnings from MTN as Nigeria remains the group’s largest pool of subscribers for the group,” Shaun Murison, an analyst at IG Markets, said last week.