Fitch Ratings has affirmed Ooredoo Q.S.C’s (Ooredoo) Long-term foreign currency Issuer Default Rating (IDR) at ‘A+’ with Stable Outlook. Qtel International Finance Limited’s global medium-term note programme and Ooredoo Tamweel Limited’s Sukuk programme have also been affirmed at ‘A+’.
Ooredoo’s IDR is notched down from Fitch’s credit assessment of the State of Qatar on a top-down basis, reflecting strong legal, operational and strategy ties between the two. This is in accordance with the agency’s Parent and Subsidiary Linkage criteria. The State of Qatar, directly and indirectly owns 69% of Ooredoo.
Key Rating Drivers:
Ooredoo’s ratings reflect Fitch’s assessment of the State of Qatar’s creditworthiness due to strong operational and strategic ties. Strong ties are supported by the ownership of a golden share of Ooredoo by the Qatari government. This implied state support underpins the strong ratings and offsets risks associated with diversification into weaker-rated emerging markets, slowing sector growth and M&A risk.
Limited Growth Prospects
In line with Fitch’s expectations, Ooredoo’s revenue grew by a modest 1% in FY13, due to maturing mobile markets, increasing competition and changes to the technology landscape. The company has responded by shifting its strategy towards efficiency improvements and focusing on data services, which should help stabilise operating margins in the medium-term. Nevertheless, Fitch expects pressure in this area to continue over the short- to medium-term with no revenue growth and EBITDA margins under pressure at low 40%-41% on a group basis.
Emerging Markets Exposure
Ooredoo generates approximately 22% of its consolidated EBITDA from Qatar (excl. eliminations) and we expect contribution from the domestic business to remain around 20% in the coming years. Other GCC countries, mainly Oman and Kuwait, account for 10.5% of the group’s consolidated EBITDA, with the remainder being derived from Indonesia, Iraq, Algeria and Tunisia. Ooredoo’s operations in these lower-rated countries continue to generate stronger headline growth than the domestic market, but are exposed to higher political and economic risks. Currency fluctuations and access to cash of operating subsidiaries domiciled in some weaker-rated countries could prove challenging under adverse political circumstances.
Conservative Leverage Profile Expected
Ooredoo’s consolidated leverage guidance is 1.5-2.5x net debt/EBITDA. The group’s leverage remained within this level at end-2013 and Fitch expects this to be the case in the foreseeable future. Nevertheless, Fitch recognise that this ratio can fluctuate quite significantly within these limits, depending on any large scale M&A. Fitch, however, believes that if the group breaches these levels and struggles to deleverage within a short forecast period (12 months), equity support from the State of Qatar would be forthcoming to place leverage levels on a more stable footing.
M&A Risk and Increasing CAPEX
Fitch estimates that the awarded Myanmar’s license will require significant amounts of investments over 2014-2016. Ooredoo indicated in Q1 its plans to invest $1bn to cover license cost, capex and opex requirements for 2014. As this is a greenfield network roll-out, any material positive contribution to the group’s EBITDA is unlikely over the medium-term. The new license is also much smaller in terms of scale than the recently withdrawn bid for Maroc Telecom.
Adequate Liquidity Profile
Fitch expects liquidity to remain adequate for the current ratings, underpinned by the company’s large cash balance of $5.6bn (QR20.3bn) at FYE13. The company has recently been active in the bond and Sukuk markets extending overall debt maturities, with 63% of debt maturities now due beyond 2016. Future short-term debt maturities in 2014-2015 will be comfortably met with internal cash flows and cash on balance sheet.
Positive: Future developments that could lead to positive rating actions include:
– Positive change in the sovereign rating
Negative: Future developments that could lead to negative rating action include:
-A downgrade of the sovereign rating or any change in the implied support, commitment, importance to and ownership by the State of Qatar, which would prompt a review of the ratings
-Aggressive acquisitions that breach the company’s maximum net debt/EBITDA level of 1.5x-2.5x
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