Africa’s biggest mobile phone company, MTN Group, had its credit rating outlook lowered to “negative” by Moody’s and Fitch on Thursday, with the ratings agencies citing the potential impact of a $5.2 billion fine imposed by Nigeria’s telecoms watchdog.
The South African company’s share price has tumbled by 19% this week on Thursday after the Nigerian Communications Commission (NCC) imposed the penalty on Monday for failing to disconnect users with unregistered SIM cards.
Executives from the telecom group were meeting Nigerian government officials and the regulator in Abuja on Thursday to discuss the fine, two regulatory sources said.
“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 $5.2billion fine in Nigeria,” Moody noted in their rating.
Fitch Ratings also said it had revised the outlook on MTN’s long-term foreign currency issuer default rating to negative from stable, flagging the risk of a significant cash outflow because of the Nigerian fine.
MTN maintains Moody’s Baa2 rating, two notches above junk status, and Fitch’s BBB rating.
Before Monday’s sanction, MTN held three meetings with the regulator, during which authorities flagged Nigeria’s battle with Boko Haram insurgents and the need to register all subscribers or deactivate them, the sources said.
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
An MTN spokesperson was not immediately available to comment after Moody’s lowered its rating outlook.
Moody’s said that MTN has sufficient headroom to absorb additional debt to pay the fine but it would reduce the company’s financial flexibility to absorb other potential risks.
Nigeria is MTN’s largest market and accounts for about a third of the group’s revenue.
Sources have told Reuters that the company is in talks to try to reduce the fine.
Moody’s said that negotiations between MTN’s Nigerian unit and the regulator are unlikely to be resolved quickly, potentially damaging its business in the West African nation.
“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,” the rating agency said