Telkom ends Moody’s ties in bid to cut costs

Ratings agency Moody’s Investors Service has officially withdrawn all its credit ratings related to Telkom, after the fixed line operator’s decision to cut ties with the firm, leaving S&P Global Ratings as its only ratings agency.

As an entity that is held mostly in government hands, through the state’s direct 40% stake and the 15% held by the Public Investment Corporation (PIC), ratings agencies often view Telkom’s prospects factoring in government influence and sovereign risk. 

In a note to investors, Telkom said it had decided “to no longer have two crediting ratings agencies in line with the company’s broader cost reduction initiatives”.

As a result, Telkom will continue with and has appointed S&P as the sole credit ratings agency and terminate the Moody’s credit ratings agency services, effective from December 11 2024.

After the announcement on Thursday, Moody’s said it had withdrawn all credit ratings of Telkom, including the Ba2 corporate family rating, the ba2 baseline credit assessment and the Aa2.za national scale rating CFR.

“We have decided to withdraw the rating(s) following a review of the issuer's request to withdraw its rating(s),” Moody’s said. 

Before the move, Moody’s outlook on Telkom was stable.

A year ago, the agency said it expected Telkom’s performance to improve over the coming 18 months, which would help to improve its credit metrics, but did not give the telecom operator the benefit of the doubt entirely.

In a note, published in December 2023, Moody’s affirmed Telkom’s corporate family rating of Ba2 but downgraded its national scale rating to Aa2.za from Aa1.za.

In September, S&P affirmed Telkom’s BB long-term global scale issuer credit rating with a stable outlook, and later issued a national scale rating of za.AAA in December.

This a few weeks after Telkom reported an almost 10% jump in profit at the halfway stage as its cost optimisation initiatives started to yield results.

Profit for the six months ended September was up 9.7% to R1.07bn, but on an adjusted basis profit was 67.9% higher at R1.64bn. Adjusted financial measures exclude the R160m restructuring cost and the Telkom Retirement Fund derecognition loss of R618m.

Group revenue for continuing operations was up 1.9% to R21.4bn with mobile service revenue increasing 10% and fibre data service revenue rising 15.5%.

Adjusted earnings before interest, tax, depreciation and amortisation were up 18.3% to R5.6bn, demonstrating improved operating leverage, it said.

gavazam@businesslive.co.za