Fitch Ratings this week placed Telecom Namibia Limited’s ‘BB+’ Long-term local currency Issuer Default Rating (IDR) and ‘A-(zaf)’ National Long-term rating on Rating Watch Negative (RWN).
Key rating drivers for Fitch included cash flow impediments over a two to three year span, which are expected to hamper operations, Telecom Namibia’s investment mobile network and the related high execution risk in rolling out its TN Mobile offering as well as deteriorating funds generated from its operations.
Said Fitch, “the Rating Watch Negative reflects deterioration in Telecom Namibia’s (TN) financial profile and its weak liquidity position. TN faces a liquidity cliff, including a bond maturity of N$200 million due in August 2015. Repayment of the bond, along with funding for its ongoing operations”. The government of Namibia, through Namibia Post and Telecom Holdings Limited, pledged N$400 million equity injection into Telecom Namibia. Of this N$176 million was received as of end-June 2015 and a further instalment is scheduled to be made ahead of the August bond maturity. This, along with previous indications of support, suggests tangible government support for TN and currently underpins its ratings, explained Fitch.
“Funds From Operations (FFO) deteriorated to N$1 million in 2014 from N$151 million in 2013, increasing Telecom Namibia’s adjusted net leverage to 10.1x from 5.4x. FFO fixed charge coverage fell to 1.0x from 3.5x during the same period. The erosion of TN’s cash flow generation is set to continue into the rest of 2015 and potentially into 2016, given declines in the company’s fixed- voice revenue and lower-than-expected growth from mobile,” Fitch said.
Concluded Fitch, “we expect liquidity to be weak due to negative free cash flow (FCF) and maturing debt in 2015. Telecom Namibia had N$58 million of cash at end-May 2015. This compares with N$716 million of short-term debt and expectations of negative FCF for 2015.”