DOHA: Standard & Poor’s Ratings Services has affirmed its ‘A/A-1’ long- and short-term corporate credit ratings on Ooredoo (Qatar TelecomQtel) and its ‘A’ issue rating on Qtel International Finance Ltd’s senior unsecure debt. At the same time, the ratings were removed from CreditWatch, where they were placed with negative implications on April 26. The outlook is negative.
The rating affirmations follow Qtel’s announcement that it had withdrawn its binding offer to acquire 53 percent of Moroccan-based telecom operator Maroc Telecom from Vivendi.
“We therefore no longer see an immediate risk that Qtel’s debt leverage will increase above our base-case expectations. We assume that Qtel has significant flexibility to finance organic growth across its large portfolio of international operations without meaningful debt increases. In our base case, we assume Qtel will maintain its Standard & Poor’s-adjusted consolidated debt to EBITDA at about 2x, which is commensurate with the current ratings,” the ratings agency noted.
The ratings on Qtel are based on our assessment of its stand-alone credit profile of ‘bbb’ and our view that there is a “high” likelihood that the government of Qatar would provide timely extraordinary support to Ooredoo during financial distress.
“We assess Qtel’s business risk as ‘satisfactory,’ reflecting its dominant position in Qatar and diversified portfolio of operations in Asia and Northern Africa, usually characterised by leading market positions and profitability. These strengths are increasingly offset by Qtel’s rising exposure to countries with above-average country risks, such as Iraq.”
Qtel’s “intermediate” financial risk profile is supported by its moderate debt leverage on a consolidated basis (adjusted debt leverage at about 2x), strong underlying cash flow generation in the home market, ongoing support from the government, and adequate liquidity. The financial profile is constrained by the company’s track record of acquisitions and payment of sizeable dividends without a clearly articulated dividend policy. Additional rating weaknesses include a cross-default clause to material subsidiaries in Qtel’s debt documentation that could provide incentive for the company to ensure that no default occurs at its large emerging-market assets.
The negative outlook reflects the likelihood that we might lower the ratings on Qtel by one notch if leverage exceeded our base-case scenario as a result of acquisitions or underperformance. Downside could also stem from a further weakening of the company’s business profile, primarily due to higher country risk exposure.
“In our base-case assessment, we assume Qtel’s consolidated debt to EBITDA will not significantly exceed 2x in 2013 and 2014. This assumes that Qtel will focus on organic growth and refrain from large debt-financed acquisitions. Qtel has relatively limited headroom at the current rating level to increase leverage, in our view.” Ratings pressure could emerge if the company increased debt without the capacity to reduce it to ratings-commensurate levels within the 12-month horizon.
A significant reduction in the state’s shareholding in Qtel and consequent reappraisal of our assessment of Qtel as a government-related entity could lead to a downgrade of up to three notches. “We could revise the outlook to stable if Qtel reduced its leverage, which would create some headroom against our expectations,” the ratings agency said.
The Peninsula
