Egypt's Orascom Telecom Debt Rating Affirmed
Standard & Poor's Rating Services says that it has affirmed its long-term 'B+' corporate credit ratings on Egypt-headquartered emerging markets wireless telecommunications operator Orascom Telecom Holdings (Orascom Telecom) and related finance subsidiary Orascom Telecom Finance. The outlook is stable.
The affirmation follows the recent announcements of Orascom's sale of 100% of Iraq-based subsidiary Iraqna Company for Mobile Services (Iraqna) for $1.2 billion and its 14.2% remaining stake in Hutchison Telecommunications International Ltd (HTIL), which over time will boost Orascom's liquidity, following completion and receipt of funds.
"While long-term upside from the Iraqi market will no longer be a growth factor for Orascom, the liabilities related to license payments and security risks related to operating in the Iraqi market are removed," said Standard & Poor's credit analyst Michael O'Brien. "Furthermore, the sale of HTIL shares at this point in time has enabled an orderly realization of value and exit from its original investment of 19.3% in HTIL."
The constraints on the ratings on Orascom associated with operating in emerging markets remain the same, however. Orascom provides services in high-growth, low-penetration mobile telecom markets that have higher-than-average political and institutional risk and low GDP per capita relative to the U.S. and Europe, requiring significant amounts of investment to provide adequate network coverage and capacity.
The company's aggressive financial policy regarding dividends, share repurchases, and the complex and leveraged capital structure of its parent, Weather Investments, are additional strong constraints on the ratings. The stable outlook reflects Standard & Poor's expectation that Orascom Telecom will continue to develop its business and execute its strategy toward achieving sustainable positive FOCF in the future, while at all times providing sufficient liquidity to fund capital expenditures or acquisitions and to meet ongoing debt repayments.
"The outlook also assumes that dividend payments and share repurchases will not unduly burden Orascom or meaningfully increase the leverage of the overall group beyond current levels of 4.0x adjusted debt to EBITDA, including debt at Weather," said Mr. O'Brien.
Although significant deleveraging could provide for some rating upside, this may not be immediate, given the strategic options open to Orascom Telecom to grow its business.
Any significant increase in debt could pressure the rating if it was not accompanied by sustained FOCF generation. Likewise, a risk of breach of covenants on Orascom Telecom's $2.5 billion secured credit facility or significant liquidity concerns would weigh on the rating.
Posted to the site on 17th December 2007
