Thursday, July 08, 2021 / 04:12
PM / by Kalu Aja* / Header Image Credit: Ecographics
Nigeria's largest mobile network operator, MTN Nigeria, has announced that the Global Credit Ratings (GCR), a rating agency, has upgraded her national scale long-term issuer ratings to AAA. GCR has also affirmed MTN's national scale short-term rating of A1+. This rating is a big deal for MTN, A huge positive affirmation of its franchise in Nigeria. MTN Nigeria is now the first mobile network operator in Africa to be accorded an AAA corporate rating by GCR, the highest possible long-term and short-term ratings on GCR's national rating scale
GCR said the AAA ratings reflect MTN's very strong competitive position as the leading provider of telecommunication services in Nigeria and its strong earnings and cash flow, which has supported a robust financial profile. GCR also noted that MTN Nigeria is viewed as operationally integral to the MTN Group and accounts for 29% of MTN Group subscriber base (FY20) and around 30% each of revenue and EBITDA of MT Group.
MTN Nigeria Is The Group Crown Jewel
Nigeria is the largest MTN market, contributing 14.6% to the MTN group's service revenue in 2020. MTN posted the highest ever recorded full-year revenue of any Nigerian listed company at N1.3t in FY 2020, and this was an increase of 15% from 2019. MTN Data-led segment sales alone posted a 51% year to year growth.
MTN 4G Network now covers about 60% of the Nigerian population compared to 43% in 2019. GCR notes that MTN Nigeria's competitive position is underpinned by its well-established brand, a broad spectrum of licences, substantial infrastructure and network coverage, which allows it to monetise excess capacity and share infrastructure with other domestic operators.
What does a AAA Corporate Rating Mean?
What are corporate ratings? According to Investopedia, "A corporate credit rating is an opinion of an independent agency regarding the likelihood that a corporation will fully meet its financial obligations as they come due". A rating is like a credit score for companies; the higher the rating, the higher the relative ability of a company to meet its obligations, both long term and short term.
An AAA Rating means in GCR's opinion that any lender buying long term bonds from MTN has the confidence that MTNs credit obligation has the "highest international scale creditworthiness." In addition, MTN issued short term obligations have the "highest certainty of timely payment."
In summary, lending to MTN with a high credit rating is good business and prudent. According to GCR Rating, the leverage metrics for MTN Nigeria are expected to remain strong.
Why Is This a Big Deal for Nigeria and MTN?
MTNs revised strategy, tagged Ambition 2025, is anchored on building the largest and most valuable platform business with a clear focus on Africa. MTN Group plans to divest its other operations in the Middle East and focus on Africa by driving scale connectivity and infrastructure business, using its mobile and fixed access networks across the consumer, enterprise, and wholesale segments. MTN's goal is to "win in digital services in the key African markets as customers come online for the first time."
According to the e-Conomy Africa 2020 report prepared by the IFC (the Finance arm of the World Bank) and Google, the Africa internet economy has the potential to reach $180 billion by 2025, accounting for 5.2% of the GDP of Africa in just four years.". Nigeria in 2019 had 125 million internet users, which translates to a 60% penetration rate. Thus MTN is positioning itself to capture as much of this fast-growing market. MTN plans to implement its growth strategy through selective partnerships and leveraging MTN's brand as the most trusted and valued in Africa. At the same time, it will be supported and funded through enhanced cost and CAPEX efficiencies.
To target and win a critical share of this projected 125m subscribers in Africa, MTN Group must invest in infrastructure, people and systems. Thus MTN plans to invest approximately R29.1 billion in its network, fintech and digital services platforms in 2021, supporting its 2025 ambition.
Nigeria is MTN Group's key market in Africa and will be critical to driving revenue growth. To support the group's growth strategy MTN Nigeria registered an N200bn Bond Issuance Programme and successfully raised N110bn in Series 1 Senior Unsecured Bond Issue in May 2021. GCR also notes that despite the increase in borrowing, "MTN Nigeria net debt to EBITDA has remained conservative around 1.3x in the recent period and operating cash flow of debt has trended above a strong level of 40%.". GCR maintains the N110b Bonds will bear the same national scale long term rating as that accorded to MTN Nigeria. Thus MTN, with its premium credit rating, can borrow to invest at prefered rates, further improving margins and competitiveness.
Commenting on the rating, Karl Toriola, Chief Executive Officer, MTN Nigeria, said, "We are delighted with the outcome of the GCR rating. This demonstrates the resilience of our business and positions MTN Nigeria as the benchmark of reference for the information and communications technology sector for long-dated, fixed-term instruments. As we continue to invest in our network and strengthen our risk management processes, we remain focused on sustaining and accelerating growth in line with our Ambition 2025 strategy."
MTN's goal is simple, and they want to be number one in Africa by a mile; in my view, the GCR rating confers a premium status to MTN Nigeria, enabling it to approach the Nigerian equity and debt markets. MTN has demonstrated it can be flexible and adaptive in managing crises and delivering stunning positive headline numbers. A focus on the African markets is appropriate and allows MTN to deploy its most trusted brand status to significant effect. MTN's FINTEC franchise alone, with over 46 million subscribers, and projected by the Group CEO Ralph Mupita to hit 100 million over the next five years, will be a crucial driver of organic growth for the group, and can possibly be spun off in future as a separate vehicle for investors to participate in according to Mupita.
GCR Ratings is a founding member of Europe based ARC Ratings, which is registered with the European Securities and Markets Authority.
About the Author
*Kalu Aja is a Financial Planner and Economic Strategy Consultant with over 20 years expertise in the financial services industry. He has extensive knowledge of brand management, Investment & Private Banking and Occupational Pension Management. He is an alumnus of the University of Nigeria, Lagos Business School and the New York Institute of Finance. Kalu also manages a personal financial advocacy â€œFinancial Planning with Kalu Ajaâ€ which focus on Entrepreneurship and Personal Finance. He also writes and speaks on various media and forums along the topics of financial literacy, fiscal federalism and limited government.