Fitch affirms MTN's rating

By Nicola Mawson, Contributing journalist

Johannesburg, 17 Aug 2009

International ratings agency Fitch Ratings has affirmed MTN's long-term rating and says it has a “stable outlook”.

The news is not expected to affect the pending merger between MTN and India's Bharti Airtel, comments an analyst.

Fitch says its affirmation of MTN's rating reflects “strong subscriber growth” in the cellular company's markets, which have “relatively low mobile penetration”.

MTN is in exclusive talks to merge with Bharti Airtel. Should the $23 billion deal go ahead, the companies would have a combined subscriber base of almost 200 million.

Africa's largest cellular company operates in 21 countries in Africa, Asia and the Middle East. By the end of March, it had 98.2 million subscribers across its operations.

Fitch says MTN's strong subscriber growth has driven solid cash flow generation. In addition, user growth is behind MTN's profitability, and has led to lower debt levels, it says.

However, the ratings company points out that Africa's largest cellular operator is expected to spend on infrastructure this year, which will reduce free cash and increase debt.

Political risk

It also cautions that MTN operates in countries where there is high political and regulatory risk, although Fitch does not name the specific regions. It says MTN may face difficulty in repatriating cash back to SA from some jurisdictions.

So far, however, MTN has “demonstrated its ability to successfully repatriate cash flow to SA,” Fitch adds.

“The stable outlook reflects Fitch's view that MTN's business profile remains well-positioned in the medium-term to weather the industry's challenges, including increasing competition in its core markets,” it says.

Fitch does not comment specifically on the pending deal with Bharti.

Chris Gilmour, an analyst with Absa Investments, says the no-change rating means Bharti will not be put off MTN, which it may have been if the company had been downgraded.

“MTN has always had a good rating, and deservedly so,” he says.