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Fitch downgrades Telecom

Rating’s agency Fitch has downgraded Telecom Namibia to BB+, a notch down from the BBB- credit rating previously held. Telecom’s long-term rating has also taken a knock, affording it an A- rating, down from the A rating held. According the Fitch, factors that compelled the downgrade stem from cash flow woes, a delayed mobile network roll-out, envisaged competition, as well as liquidity woes, expected to come into play when Telecom Namibia has to honour a debt obligation, payable in 2015.
“The downgrade reflects our view that state support for Telecom Namibia has weakened. We also note that so far this year TN has not requested additional government support. The erosion of Telecom Namibia’s cash flow generation looks to continue into the rest of 2014 given a decline in fixed-line revenue and high capital expenditure. The downgrade now reflects a two-notch differential of Telecom Namibia’s ratings with those of the Namibian sovereign’s local currency Issuer Default Rating of BBB or stable” the Fitch statement read. According to Fitch, the mobile network roll-out delay will impact revenue stemming from an up-tick in subscribers taken as a result of a lower mobile and data footprint. The ratings agency said 253 base stations were expected to be operational but only 190 have been installed.

“Cash flow constraints are set to further stretch the operator, with Telecom Namibia reporting negative cash flow of N$223 million for the financial year 2013. Capital expenditure requirements will mop up a significant chunk with revenue not sufficient to fund capital expenditure requirements” Fitch said.  Increased competition in the form of MTC has highlighted the prospects for lower margins and price discounting. While Telecom Namibia will roll out fixed-line infrastructure, Fitch reported that it will pose a significant implementation risk.
Liquidity risks are on Telecom’s horizon on account of declining revenues and huge capital expenditure requirements brought on by infrastructure investments. These negative operating conditions are exacerbated by bond repayments expected in 2015. Fitch expects cash flow impediments in the region of N$180 million for the current financial year.

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