International ratings agency S&P has downgraded MTN to junk following increased risk to it on the back of trouble in Nigeria.
MTN has not commented, save to alert the market on Monday.
“In our view, Nigeria's economy has weakened due to a marked contraction in oil production, a restrictive foreign exchange regime, and delayed stimulus. MTN has material exposure to Nigeria and South Africa.”
Nigeria, MTN’s largest market, accounts for 37 percent of revenue, while South Africa accounts for a quarter.
S&P says it considered MTN's exposure to potential legal and regulatory risks and its ability to maintain sufficient liquidity in a sovereign default scenario.
MTN has recently battled in Nigeria and has been accused of illegally repatriating $14 billion out of the country, and bribing officials to reach a settlement on its record $1.6 billion fine.
The fine as levied because MTN failed to cut off unregistered subscribers and initially had been substantially higher.
S&P says, while MTN’s debt ratio is expected to worsen, it expects improvement as reinstatement of regulatory revenues in Nigeria, increased data revenues, and improved device sales in South Africa.
It continues to view MTN’s debt as positive as it is modest and assumes it will reduce shareholder returns and capital expenditures (capex), given its NCC fine obligation and limited ability to source hard currency in Nigeria (because of foreign exchange controls).
“Still, we expect positive, albeit very low, discretionary cash flow.”
The rating agency also notes its assessment of MTN's business risk profile is supported by the group's leading market positions in 15 of the 22 countries where it operates; geographic diversity; licenses for third-generation and long-term evolution technology; more than 230 million subscribers; and growing markets that provide potential for continued, albeit unpredictable, revenues and operating profit growth.
“We could consider an upgrade if risk arising from country exposure abated. For example, this could occur if we upgraded Nigeria or South Africa and the resulting blended sovereign rating rose to 'BB', or if we believed MTN's ability to withstand a sovereign stress had improved materially.”
However, S&P warns MTN could be lowered if risk increased materially.