Naspers has expressed disappointment with Fitch Rating's downgrade of its credit status to junk, saying it does not agree with the agency's exclusion of its listed assets in its assessment.
The agency yesterday dropped local media group Naspers' long- and short-term ratings to what is commonly known as junk status because of a deterioration in its profitability as it continues to invest in future offerings.
Naspers, the largest media group outside of the US and China, with a market capitalisation of R597 billion, has been continuing its expansion into e-commerce and digital television. This led to development spend accelerating 79%, to R7.7 billion, during the past year. "Our Internet activities are rapidly transforming themselves into mobile-focused operations," it said in its results.
Room to grow
Naspers spokesperson Meloy Horn says the "bottom line is that the total market value of our investments in Tencent and Mail.ru (both listed) is $55 billion". She adds its net debt, at the end of the last financial year, was only $1.5 billion.
In a statement, Fitch said "the downgrade reflects the deterioration in the group's profitability mainly due to its high development spend as Naspers continues to invest in growth opportunities".
While existing operations are performing well, higher-than-expected investments in global e-commerce and sub-Saharan pay-TV opportunities led it to reduce its expectations of operating profit and cash flow.
Fitch explains Naspers is in a multi-year development phase to expand the scale of its e-commerce platforms in about 40 countries. Its e-commerce unit widened its loss during the year, from R2.3 billion to R5.3 billion.
Horn notes Fitch's concerns are based on a "short-term issue related to the negative impact of our strategy to pursue long-term growth opportunities in e-commerce and digital terrestrial television organically," which requires higher development costs that will affect profitability.
"We remain committed to regaining an investment grade rating again in future when our investments in these new opportunities start generating returns."
Horn adds there is no immediate need for new debt and no major refinancing before 2017, which means the downgrade should have a limited impact on its financing position and borrowing costs in the near future. She notes the listed group still has substantial headroom in its current cash and debt facilities.
Naspers ended the year to March with cash and cash equivalents of R18.8 billion.
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