DOHA: Fitch Ratings has affirmed Ooredoo’s (Qatar Telecom QSC) Long-term foreign currency Issuer Default Rating (IDR) at ‘A+’ with Stable Outlook.
Qtel International Finance Limited’s global medium-term note programme (GMTN), guaranteed by Ooredoo, has also been affirmed at ‘A+’. The affirmation reflects Fitch’s assessment of the sovereign’s creditworthiness due to Ooredoo’s strong operational and strategic ties with the State of Qatar, which directly and indirectly holds 68 percent ownership of Ooredoo.
This implied state support underpins the strong rating category and offsets risks associated with diversification into weaker rated emerging markets, slowing sector growth and M&A risk.
Ooredoo’s revenues continue to grow at rates in excess of western European incumbents. However, like most incumbent operators, Ooredoo is also experiencing a combination of maturing mobile markets, strong competition for remaining customers and some technology disruption.
The group has responded by shifting strategy towards improving operational efficiency and driving mobile data products and has succeeded in stabilising margins. Fitch expects continued pressures in this area in the years ahead and it will remain challenging for Ooredoo to achieve past growth rates.
The ratings agency noted Ooredoo generates 28 percent of its consolidated EBITDA from its key Gulf markets of Qatar and Kuwait. The balance of EBITDA is primarily generated from Indonesia, Iraq, Algeria, and Tunisia. These weaker rated countries continue to generate stronger headline growth than domestic markets but are exposed to higher political risks. Currency fluctuations and access to cash at the operating subsidiaries can also prove difficult in adverse political circumstances.
Large majority controlled acquisition targets which have solid telecoms market positions in MENA and AsiaPac cannot be ruled out. These are generally not cheap and can spike leverage levels quite significantly. Fitch continues to treat any acquisition as event risk, in line with its methodology.
Ooredoo’s own leverage guidance is 1.5x to 2.5x net debt/EBITDA and while the group was well within these levels as at YE2012 (1.9x as reported by Ooredoo), it can fluctuate quite significantly within these limits depending upon any large scale M&A. Fitch draws comfort from its opinion that if the group breached these levels and struggled to deleverage within a short forecast period (12 months), equity support from the State of Qatar would be forthcoming to reduce the position and place leverage levels on a more stable footing.
On the positive rating sensitivities, Fitch noted Ooredoo’s future developments could lead to positive rating actions that include Sovereign Linkage and an upgrade of the sovereign may be positive for the company’s rating. On a negative note, the report said future developments could lead to negative rating action that include Group Leverage:
The following instruments have had their ratings affirmed: Qtel International Finance Limited’s $5bn Global Medium Term Note Programme at A+ and Qtel International Finance Limited’s $3bn Global Medium Term Note Programme at A+.
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