Moody's Investors Service (Moody's) has changed the outlook on MTN Group Limited's (MTN or Group) Baa2 ratings to negative from stable following the announcement on the 26 October, 2015 that the Nigerian Communications Commission (NCC) has imposed a fine of Naira 1.04 trillion (US$5.2 billion) on MTN Nigeria relating to the timing of the disconnections of just over 5.0 million improperly registered subscribers.

In addition, Moody’s have affirmed MTN's Baa2 global issuer rating, the A1.za national scale issuer rating and the Baa2 rating on the senior unsecured notes issued by MTN (Mauritius) Investments Limited.

RATINGS RATIONALE

The change in outlook to negative from stable reflects the potential for deterioration in the Group's credit metrics and liquidity profile if MTN has to pay the full equivalent US$5.2 billion fine in Nigeria.

While there is sufficient headroom in MTN's consolidated debt/EBITDA metric to absorb additional debt to immediately pay the fine it will reduce MTN's financial flexibility to absorb other potential event risks. Moody’s estimates that its adjusted debt/EBITDA on a consolidated basis will increase from 1.2x to 2.1x, compared to the 2.5x maximum leverage tolerance for the current Baa2 rating.

Moreover, MTN's liquidity profile could come under pressure depending on the final fine amount involved.

Moody's notes the challenges faced with the negotiation process between the NCC and MTN Nigeria which is unlikely to be resolved quickly.

A long negotiation process would put a strain on the relationship and interactions with the Nigerian telecoms regulator and disrupt business continuity which would have negative long term consequences on MTN's Nigerian operations.

 At this time, there remains a range of possible outcomes which will have different consequences on MTN's credit profile.

As a result of the uncertainty it is difficult to estimate the timing and the final outcome of the discussions or the possibility of reducing the size of fine. Accordingly, Moody's will monitor the developments with  specific focus on the speedy resolution with the NCC, the final fine amount, any corporate governance issues as well as any mitigating  measures that the Group can put in place.

OUTLOOK

The outlook could be stabilised if matters are clarified and resolved with limited or manageable implications to MTN's Nigerian and Group operations and to their liquidity profile.

WHAT COULD CHANGE THE RATING DOWN/UP

Further downward pressure on the rating could develop if Moody's considers that the fine remains substantial with significant impact on credit metrics, there are long term regulatory implications and MTN´s ability to upstream dividends from its Nigerian operations is negatively affected.

Furthermore, developments that would most likely have negative rating implications would be (1) a material weakening of the credit profiles in the key markets (such as South Africa, Nigeria, Iran and Ghana); (2) a failure to maintain a balanced debt profile at the MTN Group level in line with current expectations; (3) a sustained loss of market share or material declines in operating margins in its key markets; (4) event risk associated with a material acquisition or other corporate activity that  negatively impacts the company's existing or targeted leverage ratios; or (5) lower than expected up-streaming of dividends / cash flows from MTN's non-South African operations, including Nigeria, which might result in higher leverage developing over time at the MTN Holdings level, particularly in the event of a debt financed acquisition. Quantitatively, downward pressure would arise if MTN's consolidated EBITDA margin was sustained below 40% and/or total debt to EBITDA on a consolidated basis or in MTN Nigeria or MTN South Africa were to rise sustainably above 2.5 xs.

In the absence of improving credit profiles within the major markets in which MTN operates (such as South Africa, Nigeria, Iran and Ghana),  MTN's rating is unlikely to be upgraded to Baa1, particularly given our  expectation of stronger growth opportunities in markets outside of South Africa.

MTN Group Limited (MTN or Group), based in South Africa, is the largest African-based mobile telecommunications operator in terms of subscriber base and revenues.

Operating since 1994, MTN has leading market positions in 22 African and Middle Eastern countries with a total subscriber base  of 233 million, as of 30 September 2015. Its key markets, South Africa (Baa2 stable) and Nigeria (Ba3 stable), combined contribute 63% to consolidated EBITDA. For the last twelve months (LTM) ended 30 June 2015,

MTN reported Group consolidated revenue and adjusted EBITDA of ZAR143.5 billion (approximately USD12.6 billion) and ZAR74.1 billion (approximately USD6.5 billion), respectively.

The principal methodology used in these ratings was Global Telecommunications Industry published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks.

NSRs differ from Moody's global scale credit ratings in that they  are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country.

NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in June 2014 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".