Johannesburg - MTN shares declined by 1.95 percent to R115.17 yesterday after global ratings agency S&P Global Ratings downgraded its long-term credit rating to junk status.
Analysts said the downgrade came as no surprise after the company was slapped with a record fine by Nigerian authorities for its failure to meet a regulatory deadline to disconnect 5.1 million unregistered SIM cards, which had an impact on its bottom line.
The company officially informed the market yesterday that S&P had lowered the group’s long-term corporate credit rating to BB+ from BBB- and its South African national scale rating to zaA+ from zaAA, with a stable outlook.
Stable outlook
S&P also lowered its issuer rating on the group’s existing senior unsecured debt to BB+ from BBB-, with a stable outlook.
The ratings agency maintained a cap of two notches above the blended sovereign rating of Nigeria and South Africa, which is currently BB-.
“The sovereign downgrade reflects increased risk for MTN Group, as MTN Nigeria is a significant contributor to the group,” the company said.
MTN agreed to pay R14 billion in cash for missing the deadline to disconnect customers.
Aslam Dalvi, an assistant portfolio manager at Kagiso Asset Management, said the downgrade would likely lead to a higher cost of debt for MTN and reflected the company’s recent difficulties in repatriating cash from key markets and a weakening macro environment in these markets.
“The company continues to have a relatively healthy balance sheet and the increased cost of financing is unlikely to be material from a group point of view,” Dalvi said.
Philip Short, an investment analyst at Old Mutual Equities, said the downgrade from S&P did not come as much of a surprise given that S&P recently downgraded Nigeria’s country rating to junk.
“Considering that Nigeria contributes a significant portion of MTN Group’s cash flow, the group’s own downgrade should have been viewed as a possibility.
“The downgrade lowers MTN’s credit rating, but MTN does not have a huge amount of debt so the effect will be limited,” Short said.
MTN denied accusations by Nigerian lawmakers last week that it had illegally moved $14bn (R190.7bn) out of that country.
MTN is accused of repatriating the funds over the past 10 years, starting in 2006, according to Dino Melaye, the Nigerian politician who proposed the motion last week.
MTN is trying to repatriate $1.1bn in profits from Iran, an issue that has burdened the company for almost four years, partly due to US sanctions.
* With additional reporting by Bloomberg
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