MTN’s credit rating cut by Fitch on risks in Nigeria, S’ Africa

MTN Group Limited’s credit rating was cut one level by Fitch Ratings Ltd. because of the increased risk that Africa’s largest phone company faces in its two biggest markets, Nigeria and South Africa.

The rating was cut to BBB-, Fitch Ratings said in a statement on Thursday. The outlook was raised to stable from negative.

In Nigeria, Africa’s largest economy, the telecommunications regulator has fined MTN $3.9 billion for failing to switch off unregistered mobile-phone customers, which was revised down from an original penalty of $5.2 billion.

South Africa’s credit rating was cut by Fitch last week because of a worsening growth outlook that threatens fiscal credibility.

“These changes result in increased credit risk to MTN given its reliance on emerging markets and its exposure to South Africa and Nigeria, in particular.

“An upgrade is unlikely in the short term due to MTN’s significant exposure to countries with high political and regulatory risk.” Damien Chew, an analyst at Fitch, said in the statement.

MTN’s Group Chairman, Phuthuma Nhleko has been running the company since Chief Executive Officer, Sifiso Dabengwa resigned last month and he’s in talks with the Nigeria Communication Commission over the fine. The company’s value has dropped by about a quarter since the penalty was announced in October.

The Nigerian arm, which is the largest of the group, which has about 227. 5 million subscribers across its 22 countries of operations, currently services 63 million Nigerians and enjoys 42 per cent market in the country.

MTN South Africa recorded “muted” subscriber growth, ending the third quarter with 28 million subscribers – the same rounded figure as the previous quarter.

However, local subscribers were actually down a fraction of a per cent (0.1%), with MTN SA having lost approximately 35,000 subscribers in the quarter.

The post-paid and pre-paid subscriber base declined marginally recording 5.4 million and 22.6 million subscribers, respectively.

The Nigerian regulators slammed MTN with the fine for failing to meet a deadline to disconnect 5.1 million unregistered subscribers. The company’s shares have declined by about 29 per cent since the penalty was made public on Oct 26, and traded 2.7 per cent lower at 136.18 Rand as at last week.

While negotiations are still on possible reduction of the fine, in an interview, the Director of Public Affairs at NCC, Tony Ojobo, had said that the commission had applied the carrot and stick approach and that it was not as if MTN was marked out for punishment.

“MTN was not single handedly marked out for punishment. They faulted where others didn’t. It was a carrot and stick approach. The carrot was the 25 per cent slash and stick was the sanction”, he stated.

According to Ojobo, no body expected any of the operator to default on the regulation because in 2011 when the regulation around SIM card was made, they were all aware and pledged to abide by the rules, “so it came as a shock to us when after sanctioning all the operators earlier in July, where MTN paid N120 million for SIM card infractions, they still went ahead to as far as leaving 5.1 million defective SIMs on their network. That obviously warranted more sanctions.”

Ojobo, who said a breach is a breach regardless of the amount, disclosed that it signifies that it is no longer business as usual in Nigeria. He said the operating environment must be sanitised for more investments.

On possible reduction of the N780 billion fine should MTN make further appeal considering the December ending deadline, Ojobo said sanctions are to be paid at once.