Fitch Rates Telecom Namibia with a Stable Outlook

Fitch Ratings has assigned Telecom Namibia an International Long-term local currency Issuer Default Rating of 'BBB-' and a National Long-term rating of 'A(zaf)', both with Stable Outlooks.

­The ratings reflect Telecom Namibia's position as Namibia's natural monopoly and incumbent provider of fixed-line and data telecommunications services. The ratings also factor in the company's strong operational and strategic ties with the Namibian government, given its 100% state ownership, and the assumed government support for the company.

The Stable Outlook is based on a balance of factors including the fact that the company has now completed the majority of its network infrastructure investment programme, the uncertainties presented by ongoing market liberalisation, the growth prospects of its broadband business and wholesale data expansion plans to the sub-regional markets.

While benefiting from a leading position in fixed-line telephony and a modern network infrastructure, Telecom Namibia lacks the scale of many of its international and sub-regional peers, while Namibia's small population limits the company's domestic growth. Fitch also notes that Telecom Namibia's concentration on fixed-line services and the absence of an established mobile venture result in a higher risk profile and weaken its competitive position.
Telecom Namibia's operating margins remain below the average of both regional and European incumbents. The ratings assume that broadband growth will be a major revenue contributor longer-term. The company also aims to become a major wholesale data bandwidth distributor to its sub-regional markets, leveraging on its direct access to the West African Coast submarine cable (WACR). Both ventures hold growth potential, and are important for Telecom Namibia's long-term business growth prospects.

Telecom Namibia continues to be of strategic importance to Namibia's economy and telecommunication needs. Fitch acknowledges that while the current regulatory environment is in favour of the incumbent, liberalisation is underway, and the introduction of competition would have an impact on the company's dominant position over the longer term.

Telecom Namibia's liquidity has been constrained due to the increased use of short-term call facilities to fund capex. Management intends to mitigate this risk by converting short-term maturities to longer-term debt, tapping into its NAD600m domestic medium-term note programme. Gross debt as of the financial year to September 2008 was NAD533m (USD72m), resulting in net leverage of 2.1x. Fitch is comfortable that the company aims to maintain a conservative financial policy and is unlikely to test the maximum leverage tolerance set by the Board at debt/equity of 66.6%.

A material deterioration in operating performance resulting in sustained low EBITDA margins (below 20%) and negative free cash flow for an extended period would have an adverse impact on the ratings. Furthermore, any change in the sovereign's creditworthiness, or evidence of a significant weakening of the parent/subsidiary linkage would also have a rating impact.

Telecom Namibia had 100% share in Namibia's fixed-line, 95% in internet subscribers (both fixed and mobile) and a nominal 2% in the domestic mobile voice market as at FYE08. The company is a wholly-owned subsidiary of Namibia Post and Telecom Holdings, which in turn is 100%-owned by the Government of the Republic of Namibia. As of June 2009, Telecom Namibia had about 148,000 fixed-line subscribers nationwide, representing a 38% fixed-line penetration rate, one of the highest penetration rates in the African continent.

Posted to the site on 30th October 2009