Global credit rating agency Moody’s yesterday affirmed Ooredoo’s ‘A2’ long-term issuer rating, reflecting improvements in its earnings before interest taxes depreciation and amortisation (Ebitda) margins following its rationalisation strategy.
The rating agency also affirmed the ‘A2’ senior unsecured ratings of Ooredoo’s wholly owned finance vehicle, Ooredoo International Finance; and the ‘A2’ senior unsecured rating of Ooredoo Tamweel. The outlook on all the ratings has been revised to “stable” from “negative”.
“The affirmations with a stable outlook reflect our view of Ooredoo’s credit metrics being restored back to levels commensurate with its baa2 baseline credit assessment or standalone alone rating, which exclude any potential uplift from the government, its majority owner,” Douglas Rowlings, assistant vice president at Moody’s, said.
Moody’s expects the rationalisation strategy would help Ooredoo’s Ebitda margins sustain above 45% and net debt/Ebitda trend below multiples of two over the next two years. “Free cash flow will likely also improve as capital expenditure spend tapers off and cost savings are realised across the group,” Rowlings said.
Moody’s recognises that Ooredoo is entering the next phase in its development, shifting away from further global expansion and focusing on a now well-established portfolio of operations.
Moreover, it expects that Ooredoo’s credit profile will continue to strengthen as management executes further efficiency gains, additional centralising of group procurement, cash conservation and deleveraging delivery.
The rating agency expects Ooredoo’s capital expenditure to be limited to small ticket items going forward such as improving upon passive infrastructure, acquiring additional spectrum, and ongoing licence renewal fees.
Over the past few years, Ooredoo has successfully removed some of the currency volatility that had begun to feature in its credit profile, by matching debt funding raised at its operating subsidiaries to local currency cash generation. Around 70% of Ooredoo’s bank debt at operating level is now denominated in local currency.
The ratings affirmations with a “stable” outlook recognise the significant inroads that Ooredoo has made in delivering cost savings across the group, which helped shoring up margins, arresting Ebitda decline in absolute terms and alleviating pressures experienced by some of its under-performing assets in Algeria, Tunisia and Iraq. It has also profitably exited some of its operations, such as Pakistan and the Philippines, as part of a sale of non-core assets.
Ooredoo’s credit profile continues to benefit from the support and rating uplift offered by the government, which owns 68.6% stake through direct and indirect holdings.
Moody’s views favourably the demonstrated track record of willingness and capacity of the Qatari government to offer financial support to it through flexibility of dividend payments; subscription to right issues totalling QR3.24bn in 2008 and QR3.79bn in 2012; and deferral of royalties and dividends for 2006-10 following the onset of the global financial crisis. At the time of the right issues the government held 55% directly in Ooredoo where it now holds 51.6%.
Ooredoo’s liquidity is excellent, with significant cash resources available together with robust cash flow generation expected to meet forecast cash uses for the next 18 months and upcoming maturities, with cash balances alone covering all group debt maturities to 2018, Moody’s said.
At the end of June 30, 2016, Ooredoo had around QR19.44bn in group cash (QR14.16bn at the Ooredoo level), and availability of committed credit lines of QR3bn. Moody’s forecasts free cash flow for the next 18 months at around QR1.6bn.
“Ooredoo’s liquidity profile further benefits from a long dated and staggered debt maturity ladder with over 90% of funding matched to operating cash supporting its repayment,” Moody’s added.
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