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Rating Actions Taken On Several Corporate Issuers With Exposure To Nigeria

Reviews & Outlooks	1072 VIEWS
Reviews & Outlooks
1072 VIEWS

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Friday, March 06, 2020 / 07:05 PM / by S& P Global Ratings / Header Image Credit: EcoGraphics

S&P Global Ratings said today that it had taken rating actions on corporate issuers that are rated at or above the Nigeria sovereign under its criteria for rating issuers above the sovereign.

This followed our rating action on the sovereign (see "Nigeria Outlook Revised To Negative On Falling Foreign Exchange Reserves; 'B/B' Ratings Affirmed," published Feb. 28, 2020.

Specifically, we took the following rating actions on the following issuers:

IHS Netherlands Holdco B.V.: We revised our outlook to negative from stable and affirmed our 'B' issuer credit and issue ratings.
MTN Group Ltd.: We affirmed our 'BB+' issuer credit rating and maintained the negative outlook, and affirmed our 'zaAAA' rating.
Mobile Telephone Networks Holdings Ltd.: We affirmed our 'BB+' issuer credit rating and maintained the negative outlook. We affirmed our 'zaAAA' issuer credit rating. We affirmed our 'BB+' issue rating on which the '3(65%)' recovery rating is unchanged.
MTN (Mauritius) Investments Ltd.: We affirmed our 'BB+' issue rating on which the '3(65%)' recovery rating is unchanged.
Seplat Petroleum Development Company PLC: We affirmed our 'B' issuer credit rating and maintained the stable outlook, and affirmed our 'B-' issue rating.

For full details on the rating actions, see the Ratings List below.

IHS Netherlands HoldCo B.V.

Our ratings on IHS Netherlands are capped by our 'B' transfer and convertibility (T&C) assessment on Nigeria because the company generates 100% of its revenues in Nigerian naira. Therefore, we believe the company would be unable to access foreign currency needed to satisfy debt-service obligations in a sovereign stress scenario where the sovereign restricts corporations' access to foreign currency.

Outlook

The negative outlook on IHS Netherlands reflects the negative outlook on Nigeria, because we expect we would lower the T&C assessment on Nigeria if we lowered the long-term foreign currency rating on Nigeria. It also reflects our anticipation that the company will maintain stable credit ratios, including debt to EBITDA about 3.0x and funds from operations (FFO) to debt of 25%-30% on average over 2020-2021.

We could lower the rating:

If we lowered our sovereign rating and T&C assessment on Nigeria; or
If IHS Holding group's liquidity were less than adequate, or its leverage were higher than we forecast in our base case, either of which resulted in a weaker assessment of IHS Holding's group credit profile by more than one notch.

We could raise the rating by one notch if we took the same action on Nigeria. However, there is limited rating upside over the next 12 months, given that the rating is constrained by our 'B' T&C assessment on Nigeria and given that the outlook on the sovereign is negative.

MTN Group Ltd., Mobile Telephone Networks Holdings Ltd., and MTN (Mauritius) Investments Ltd.

Overall, our ratings on the entities in the MTN group are constrained by the foreign currency ratings on South Africa and Nigeria.

The affirmation of the ratings reflects our view that the negative outlook already captures the group's economic exposure to Nigeria. With economic exposures to South Africa (foreign currency long-term rating: 'BB/Negative') slightly outweighing exposures to Nigeria (foreign currency long-term rating 'B/Negative'), we apply our rating-above-the-sovereign test using the blended sovereign rating of 'BB-'. We view a two-notch difference between the potential sovereign cap and the 'BB+' issuer credit rating on MTN as appropriate, given the group's forecast liquidity exceeding uses during a sovereign stress.

Outlook

The negative outlook reflects our view that the blended sovereign rating was trending lower largely because MTN's Nigerian business has been expanding faster than its South African business. The outlook also reflects the significant possibility of a downgrade over the next 12 months. This could result from:

MTN's earnings mix shifting materially and sustainably, leading to greater exposure to Nigeria, the lower-rated sovereign of its two main markets;
A weaker operating performance, which reduces MTN's liquidity, limiting its ability to withstand our sovereign stress scenario for a 12-month period, such that we can no longer rate the company two notches higher than the blended sovereign rating; or
We downgrade South Africa or Nigeria.

We could also downgrade MTN if the adjusted debt-to-EBITDA ratio rises above 3x, or if discretionary cash flow fails to turn sustainably positive by 2021.

Seplat Petroleum Development Company PLC

Seplat derives the majority (about 60%) of its revenue from crude oil exports. We think the company would be able to service its foreign currency financial obligations during a potential sovereign T&C event, where the sovereign restricts access to foreign currency, because of hard currency revenue derived from these exports. Seplat passes our rating-above-the-sovereign and T&C stress tests. Therefore, we would not expect to lower our rating on Seplat if we were to downgrade Nigeria to 'B-', and we assess that we could rate Seplat up to one notch above the T&C assessment on Nigeria. We could revise this assessment if we were to envisage a country specific event that would lead to harsher T&C restrictions.

Outlook

The stable outlook reflects our expectation that Seplat will maintain FFO to debt of more than 45% under the current rating over the next 12 months. This is supported by our expectation that continuous production will approach 70,000 barrels of oil equivalent per day in 2020 following the acquisition of Eland Oil & Gas. If Seplat were to engage in another sizable acquisition, the rating would likely remain unchanged at 'B' as long as its adjusted FFO to debt did not drop materially below 45% under current market conditions (or about 30% under less favorable Brent oil prices).

We could lower the rating if militant sabotage or operational issues arose, such that production was disrupted over the longer term. We think such a scenario will become less likely over time, once the Amukpe-Escravos pipeline becomes operational and gas production earnings increase. Rating pressure could also arise if the company undertook another debt-financed acquisition resulting in a less favorable capital structure or weaker liquidity.

We view an upgrade in the coming 12 months as unlikely. An upgrade would depend on a revision to stable of the outlook on Nigeria and would be subject to meeting most of the following:

The full availability of the Amukpe-Escravos pipeline;
Visibility around inorganic expansion and the potential implications for Seplat's capital structure;
Adjusted FFO to debt of about 45% under current market conditions (or about 30% under less favorable Brent oil prices); and
At least adequate liquidity.