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TEXT-Fitch revises Telecom Namibia outlook to negative
August 21, 2012 / 2:47 PM / 5 years ago

TEXT-Fitch revises Telecom Namibia outlook to negative

(The following statement was released by the rating agency)

Aug 21 - Fitch Ratings has affirmed Telecom Namibia Limited's (TN) Long-term local currency Issuer Default Rating (IDR) of 'BBB-' and National Long-term rating of 'A (zaf)'. The Outlooks for both ratings have been revised to Negative from Stable. The Negative Outlook reflects the potential for a weakening in the previous strong support and strategic linkage between the Namibian sovereign ('BBB-'/Stable; Long term local currency IDR 'BBB'/Stable) and TN as the latter entity seeks to establish itself as an integrated fixed and mobile service operator over the next two years. In order to mitigate the perceived threat of mobile broadband substitution, Fitch expects TN to increase investment in mobile infrastructure but that this may not be matched by a commensurate increase in revenues due to strong competition from rival state-owned entity MTC. Ultimately this could lead to margin compression, weaker cash flow generation and higher leverage. In order to stabilise the rating Fitch would expect to see greater tangible support for TN from the Namibian government. TN is rated on a top-down basis with the Namibian sovereign as laid out in Fitch's 'Parent and Subsidiary Rating Linkage' criteria. Fitch expects a continuation of government support and notes that the entity's standalone ratings would be below the current support driven rating level. As a fixed line incumbent, TN benefits from a monopoly position in fixed line telephony. However, Fitch notes that the domestic fixed line market has matured and growth in the traditional fixed line revenue base - notably voice - is likely to remain muted over the medium term. Fitch anticipates limited fixed line growth in FY12 due to on-going revenue pressure in the voice segment. Data and Internet Protocol (IP) related services saw increased revenue growth of 8.3% in FY11 (FY10 restated: 40.7%). Fitch believes that increased monetisation from broadband products with the benefits provided by the participation in West Africa Cable System (WACS) could offset revenue pressure in the mature voice market over the medium term. Fitch believes successful execution of the broadband growth strategy and managing key operating costs such as international bandwidth costs could provide a steady EBITDA performance over the medium term. However, Fitch acknowledged the participation by MTC in WACS is likely to increase competition through mobile broadband substitution. Funds from operations (FFO) fixed charge coverage is forecasted to be at 3.09x for FY12.TN has a bond of N$347m outstanding and is scheduled to mature in 2015. In Fitch's opinion, the investments in mobile network and service and the related high execution risk in rolling out this business increases the overall group's liquidity risk. WHAT COULD TRIGGER A RATING ACTION? Negative: Future developments that may, individually or collectively, lead to negative rating action include: - Downward pressure in the Namibian sovereign ratings - A decline in the level of financial support from government coupled with a weakening financial profile - If the government reduces its control and majority shareholding in the group Positive: The current Rating Outlook is Negative. As a result, Fitch's sensitivities do not currently anticipate developments with a material likelihood, individually or collectively, of leading to a rating upgrade. Future developments that may nonetheless potentially lead to a positive rating action include: - Positive rating movement in the Namibian sovereign ratings - Greater tangible support from the Namibian government For all of Fitch's Eurozone Crisis commentary go to here (Caryn Trokie, New York Ratings Unit)

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