The rating action follows Moody’s recent decision to downgrade the South African sovereign rating, also to junk.
“Telkom’s rating is linked to the sovereign rating due to government’s 40.5% stake in Telkom and its operational concentration in South Africa,” Telkom said in a statement.
The purpose of Moody’s ratings is to “provide investors with a simple system of gradation by which future relative creditworthiness of securities may be gauged”.
Moody’s cut Telkom’s rating from the lowest rung of “investment grade”, which it calls “Baa3”, to the top level of “speculative grade”, or Ba1. This means the company is “judged to have speculative elements and a significant credit risk”.
Moody’s also affirmed the long-term national scale issuer rating at Aa1.za.
‘Strong credit metrics’
“As part of its rating decision, Moody’s indicated that the rating reflects Telkom’s overall strong credit metrics, which provide adequate headroom to the company’s operating and competitive challenges,” Telkom said.
“The company also has adequate levels of liquidity over the next 12-18 months, with flexibility and sufficient levers to manage its cash flows.”
Telkom shares were trading 5.7% higher at 9.30am on Monday, broadly in line with the overall market. They have fallen by 75.2% in the past 12 months.
“Moody’s has also revised MTN’s national scale CFR higher to Aa2.za from Aa3.za to reflect the updated mapping of Global Scale Ratings to NSR due to the downgrade of the sovereign rating,” it said.
“Moody’s has also left the negative outlook unchanged to reflect the exposure to weakening sovereign credit quality in some of MTN’s key markets such as South Africa (Ba1 negative) and Nigeria (B2 negative).
“Moody’s decision to affirm MTN’s rating resulted from Moody’s view that the company’s healthy credit metrics and good liquidity will help to absorb the deterioration in the domestic macroeconomic environment.” — (c) 2020 NewsCentral Media