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Fitch lowers Telecom Namibia to junk on lack of state support for worsening credit profile [IntelliNews - Weekly Reports]
[August 17, 2014]

Fitch lowers Telecom Namibia to junk on lack of state support for worsening credit profile [IntelliNews - Weekly Reports]

(IntelliNews - Weekly Reports Via Acquire Media NewsEdge) Fitch has downgraded the long-term local currency Issuer Default Rating (IDR) on Namibia's 100% state-owned telecoms group Telecom Namibia (TN) to BB+ from BBB-, citing weakened state support amid eroding cash flow generation due to declining fixed-line revenue and high capital expenditure. TN is now rated two notches below Namibia's sovereign local currency IDR of BBB/Stable, given the deterioration in its financial profile and the absence of additional government support. The rating agency noted that a potential further deterioration without tangible signs of support from the government may result in a further downgrade due to more imminent liquidity risks. It added that TN's rating on a standalone basis is likely to be in the B category.

Fitch expects TN's already high leverage to increase further this year and the company to start de-leveraging from 2015, with the pace of de-leveraging depending on the company's ability to successfully implement its fixed mobile convergence (FMC) strategy and capture significant mobile revenue market share. TN's mobile network rollout has been delayed by about nine months so far, limiting subscriber take-up and revenue growth.

Fitch expects free cash flow (FCF), which was negative at NAD 223mn (USD 21mn) in fiscal 2013, to remain negative for the next two years, reflecting high investments in the mobile network deployment and the fixed network fibre upgrade. TN has the monopoly over fixed-line services in Namibia, but cash flow from the fixed-line business has not been sufficient to fund increased capital expenditure.

Meanwhile, Fitch expects competition on Namibia's telecoms market to increase significantly, as MTC, a 64% government-owned mobile player with almost 96% of current mobile subscribers, is also rolling out fixed-line infrastructure to compete with bundled offerings.

The agency warned that if revenue growth is slower than expected, TN's leverage could increase sharply while eroding cash flow generation could hamper its ability to refinance a bond maturing in 2015. TN had NAD 61mn of cash at the end of September 2013, compared with NAD 429mn of short-term debt. Fitch projects negative FCF of around NAD 180mn for the current fiscal year to end-September.

TN's management expects to meet liquidity requirements and planned capital expenditure with new loans in 2014 and refinancing of the 2015 bond with new bonds. It expects also to get ZAR 180mn (USD 17mn) from the sale of its minority stake in South Africa's second largest fixed telecommunications operator Neotel to Vodacom before the end of September 2015 and to use these proceeds for part payment of the 2015 bond. In addition, TN has sold its shareholding in Mundo Startel and expects to receive NAD 20mn before the end of September 2014.

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