FITCH Ratings has downgraded Telecom Namibia's long-term local currency Issuer Default Rating (IDR) to BB from BBB and its national long-term rating to A- from A.
"The outlooks are negative. The downgrade reflects our view that state support for Telecom Namibia has weakened. Telecom's standalone credit profile has deteriorated with no significant evidence of government support. We also note that so far this year Telecom has not requested additional government support," Fitch said in a report yesterday.
The report said the erosion of Telecom'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's ratings with those of the Namibian sovereign's local currency IDR of BBB/Stable, Fitch said.
State ownership has secured some of Telecom's debt in the past and provided financial guarantees.
Fitch noted that further deterioration without tangible signs of support from the government may result in a further widening of the difference between the ratings of Telecom and the government, reflecting more imminent liquidity risks.
Despite the strong links to the government, legal links are limited. These include strategic telecoms ownership links with West African Cable System's sub-sea cable landing rights and usage as well as providing important network links to government departments, schools and hospitals.
Fitch noted that Telecom's mobile network roll out has been delayed by approximately nine months with severe revenue implications. So far, 190 base stations have been deployed compared with a planned target of 253 by September this year.
As a result, TN has lower mobile coverage and data capacity than expected, limiting subscriber take-up and revenue growth.
"A new billing and customer service support system installed in
The report said Telecom had negative free cash flow of N$223 million in 2013. The cash flow is expected to remain negative for the next two years. Last year, the company faced declining fixed-line revenue, which was 35% of total revenue, compared with 42% in 2012.
Fitch said Telecom has sold its shareholding in Mundo Startel of
Fitch said Telecom had N$ 61 million of cash in 2013 compared to N$22 million in 2012. This compares with N$429 million of short-term debt and Fitch's expectation of negative cash flow of around N$180 million for 2014. Management expects to meet the liquidity requirements and planned capital expenditure with new loans in 2014 and refinancing of maturing bonds in 2015 with new bonds, the report said.
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