S & P rates MTN at junk status

MTN has been dealt a tough blow by International ratings agency Standard & Poors (S&P) as it was downgraded to junk status. This follows after MTN was ordered to pay a fine of $5.2 billion (Rxxx) to Nigerian authorities, which was later reduced to R3.9 billion (Rxxx).

This also comes after S&P lowered its long-term ratings for Nigeria as a result of weak economic growth. The ratings agency however followed that decision up by adding that the Nigerian economy is stable. But with the subsequent MTN downgrade, concerns have risen for the MTN Group as Nigeria is the mobile network’s largest customer base.

“Nigeria is MTN’s biggest market, accounting for about 37% of their revenue while South Africa only makes up about a quarter. So considering the size of that market and the potential legal and regulatory risks, the bottom line implications can be grave,” stated Paul Khweyane, trade and research analyst for Purple Group.

He added that the downgrade didn’t come as a surprise due to the country risk in Nigeria. 

 “In mid-September we saw the S&P downgrade Nigeria to junk statuses and so because of its material exposure to the country and all the issues that they have faced in that country, it was expected that a downgrade was looming,” stated Khweyane.

Will shareholders be affected?

The implications of the downgrade for the mobile giant’s shareholders are at this stage unclear.

“However it is safe to say that with the way everything is going we will see an impact on the company’s bottom line. MTN will face some liquidity challenges due the NCC (Nigerian Communications Commission) fine for failing to meet regulatory deadline to disconnect 5.1 million unregistered SIM cards. This fine was finalised at a whopping 330 billion Naira.

“The woes for MTN don’t end there because they have been recently accused of illegally repatriating $14 billion out of Nigeria. In order to deal with these possible liquidity challenges MTN is looking to raise $1 billion through a sale of $2 bonds to the Eurobond market,” Khweyane explained.

In the current competitive mobile network environment MTN is being forced to rethink its approach and clear out all these litigation issues, which isn’t the worst thing to be doing, commented Khweyane.

In their latest financial report, MTN revealed its first-ever half-year loss. They didn’t grow their subscriber base for the first  six months which is something that they need to look at, if they are to provide shareholder return. These all being issues that MTN needs to confront, if they want to survive this dip, stated Khweyane.

*MTN failed to comment at the time of publication.

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