S&P warns over Telkom credit rating - TechCentral

S&P warns over Telkom credit rating

Just a week after downgrading South Africa’s foreign currency rating to “junk”, S&P Global Ratings has changed its rating outlook on the country’s biggest fixed-line telecommunications operator, Telkom, to “negative”.

Telkom’s rating has been affirmed as “BBB-“, one level above sub-investment or “junk” grade, but S&P warned that a deteriorating political and economic environment could affect the company’s creditworthiness.

S&P said the rating review reflects its view of potentially weakening economic conditions as well as political and institutional uncertainty in the country in the next year, Telkom said in a statement to shareholders on Monday.

“The agency however notes Telkom’s market leadership position as the incumbent telecoms provider in the fixed-line voice market as well as its growth prospects in its mobile, broadband and ICT solutions business, which offsets the declining trend in fixed-line voice revenues,” the operator said.

“Telkom’s conservative capital structure combined with an expectation for single-digit net revenue growth and an average Ebitda margin of about 24% is what S&P cited as the primary reasons for maintaining our current rating position,” it added. Ebitda is a measure of operational profitability.

Telkom said this is “a positive acknowledgement to the turnaround strategy that the company embarked upon almost four years ago and the company will continue to actively manage its costs, cash and use of capital in the most efficient manner possible in the current difficult economic environment”.

“The negative outlook of Telkom by S&P reflects the possibility of a downgrade over the next year if the sovereign rating (South Africa’s rating) falls further, thereby impacting Telkom. However, having conducted a stress test to assess the company’s resilience under a hypothetical sovereign default scenario, which includes stress on earnings and a devaluation of the South African rand, S&P Global Ratings limits the differential to one notch,” Telkom said.

“The company’s rating outlook could, in future be revised to stable if similar action on South Africa’s rating was revised, or if a significant improvement in the company’s liquidity position and ability to withstand a sovereign default with a substantially greater cushion occurs.”

Last week, S&P lowered the ratings of Eskom, with a negative outlook. Eskom’s long-term foreign and local currency corporate credit ratings were scaled down to “B+” from “BB-“.  — © 2017 NewsCentral Media

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