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Fitch Downgrades Eskom, Transnet and MTN to BB+; Outlook Stable
April 11, 2017 / 4:32 PM / 8 months ago

Fitch Downgrades Eskom, Transnet and MTN to BB+; Outlook Stable

(The following statement was released by the rating agency) LONDON, April 11 (Fitch) Fitch Ratings has downgraded Eskom Holdings SOC Limited (Eskom), Transnet SOC Limited (Transnet) and MTN Group Limited (MTN). A full list of rating actions is provided below. The rating actions follow the downgrade of South Africa's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to 'BB+' from 'BBB-'. The Outlooks are Stable (see "Fitch Downgrades South Africa to 'BB+'; Outlook Stable", dated 7 April 2017 at www.fitchratings.com). Fitch continues to assess the links between Eskom and the South African state as strong, with significant emphasis placed on the Guarantee Framework Agreement which leads to a rating alignment with the sovereign. Transnet's ratings are constrained by the sovereign rating, as Fitch typically does not rate state-owned entities above the sovereign. Fitch assesses the links between Transnet and the sovereign as moderate to strong, which until 2015 led to a one-notch uplift of Transnet's rating from the standalone level. MTN's rating reflects the weakness of the macroeconomic and operating environments of MTN's main operating subsidiaries in South Africa and Nigeria. The FX mismatch between net debt and cash flow could lead to higher leverage if the US dollar strengthens. MTN's rating is constrained by the South African sovereign rating. KEY RATING DRIVERS See the relevant RAC referenced for each issuer at www.fitchratings.com. Fitch Revises Eskom Outlook to Negative: Affirms at 'BBB-', dated 8 December 2016 Fitch Revises Transnet Outlook to Negative, Affirms IDR 'BBB-', dated 30 November 2016 Fitch Revises MTN Group Limited's Outlook to Negative, Affirms at 'BBB-', dated 2 December 2016 DERIVATION SUMMARY The ratings and Outlooks of Eskom are aligned with the sovereign rating and Outlook, Transnet's rating is constrained by the sovereign's as Fitch typically does not rate state-owned entities above the sovereign. The weakness in the macroeconomic and operating environments of MTN's main operating subsidiaries negatively affect MTN's rating. MTN's rating and Outlook is constrained by the South African sovereign rating. See the relevant RAC referenced for each issuer at www.fitchratings.com for more details. KEY ASSUMPTIONS See the relevant RAC referenced for each issuer at www.fitchratings.com for more details. RATING SENSITIVITIES Eskom Holdings SOC Limited Future Developments That May, Individually or Collectively, Lead to Positive Rating Action -An upgrade of South Africa's sovereign rating provided that the strength of parent-subsidiary linkage does not weaken. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action - A downgrade of South Africa's sovereign rating - Failure to achieve more cost-reflective tariffs, in the absence of increased government support, resulting in an unsustainable financial profile and a reduction in Eskom's debt service capability. Transnet SOC Limited Future Developments That May, Individually or Collectively, Lead to Positive Rating Action - Sovereign rating upgrade while links between Transnet and the sovereign remain strong - The standalone profile will benefit from a more robust demand or pricing supporting stronger FCF and reducing expected FFO-adjusted net leverage below 4.0x on a sustained basis Future Developments That May, Individually or Collectively, Lead to Negative Rating Action - A downgrade of South Africa's sovereign rating - Weaker world commodity markets leading to a decrease in South African exports, a weak domestic economy or delay in new tariff-setting implementation for ports and concurrent maintenance of high capex plans with expected FFO-adjusted net leverage remaining well above 5.0x on a sustained basis would be negative for the standalone profile MTN Group Limited Future Developments That May, Individually or Collectively, Lead to Positive Rating Action - Positive rating action on the South African sovereign rating, together with consolidated funds from operations (FFO) adjusted net leverage sustainably below 2.5x, and unconsolidated net debt/EBITDA plus dividends for South Africa (including the group holding companies) below 2.5x Future Developments That May, Individually or Collectively, Lead to Negative Rating Action - Negative rating action on the South African sovereign rating - Consolidated funds from operations (FFO) adjusted net leverage sustainably above 3.0x - Consolidated FFO adjusted net leverage approaching the 3.0x threshold, and net debt/EBITDA at material operating subsidiaries (most notably MTN Nigeria) approaching the group average would put pressure on the rating - Pressure on operating cash flow in MTN's key markets driven by increased regulatory and competitive pressures or increased capital expenditure - Expectations of a reduction in dividends received from the operating subsidiaries leading to an increase in leverage of the South Africa operations (including the group holding companies) - On an unconsolidated basis and using Fitch's estimate of dividends received from these operating companies, net debt/EBITDA plus dividends for South Africa (including the group holding companies) over 3.0x would put pressure on the ratings FULL LIST OF RATING ACTIONS Eskom Holdings SOC Limited Long-term local currency IDR downgraded to 'BB+' from 'BBB-'; Outlook Stable National Long-Term Rating affirmed at 'AAA(zaf)'; Outlook Revised to Stable from Negative National Short-Term rating affirmed at 'F1+(zaf)' Senior unsecured local currency rating: downgraded to 'BB+' from 'BBB-' Transnet SOC Limited Long-term foreign currency IDR downgraded to 'BB+' from 'BBB-'; Outlook Stable Short-term foreign currency IDR: downgraded to 'B' from 'F3' Foreign currency senior unsecured rating: downgraded to 'BB+' from 'BBB-' Long-term local currency IDR downgraded to 'BB+' from 'BBB-'; Outlook Stable Short-term local currency IDR: downgraded to 'B' from 'F3' Local currency senior unsecured rating: downgraded to 'BB+' from 'BBB-' National Long-Term Rating affirmed at 'AA(zaf)'; Outlook Stable National Short-Term rating affirmed at 'F1+(zaf)' National senior unsecured rating affirmed at 'AA(zaf)' National senior unsecured rating for notes guaranteed by South African government affirmed at 'AAA(zaf)' MTN Group Limited -Long-term foreign-currency IDR: downgraded to 'BB+' from 'BBB-'; Outlook Stable -National Long-term Rating: affirmed at 'AA(zaf)', Outlook Revised to Stable from Negative -National Short-term Rating: affirmed at 'F1+(zaf)' MTN Holdings (Pty) Limited -Senior unsecured rating: affirmed at 'AA(zaf)' Contact: Principal Analyst (Eskom Holdings SOC Limited and Transnet SOC Limited), Supervisory Analyst (MTN Group Limited) Richard Barrow Director +44 20 3530 1256 Fitch Ratings Limited 30 North Colonnade London, E14 5GN Supervisory Analyst (Eskom Holdings SOC Limited and Transnet SOC Limited) Yeshvir Singh Associate Director +44 20 3530 1810 Fitch Ratings Limited 30 North Colonnade London, E14 5GN Principal Analyst (MTN Group Limited) Damien Chew, CFA Senior Director +44 20 3530 1424 London E14 5GN Committee Chairperson Antonio Totaro Senior Director +39 02 8790 87 297 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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