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Tunisiana Debt Ratings Affirmed with a Stable Outlook

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Fitch Ratings has affirmed Tunisiana's Long term foreign and local currency Issuer Default Ratings (IDR) at 'BBB ' and its National Long term rating at 'AA (tun)'. The Outlook on all the ratings is Stable.

­Fitch said that Tunisiana's ratings are based on the standalone performance and the financial profile of its Tunisiana-branded mobile business in Tunisia.

Wataniya, which already owned 50% of Tunisiana prior to the acquisition of Orascom Telecom's stake, became the majority shareholder with a 75% stake in Q1 2011. The acquisition strengthened Tunisiana's linkage with its ultimate parent, Qatar Telecom, which owns 52.5% of Wataniya.

The Stable Outlook reflects Tunisiana's ability to defend its market position against any potential threat from competition and the limited impact on its pre-dividend free cash flow generation from an expected decline in EBITDA margins. Tunisian mobile market reached maturity at YE10 (a current penetration rate of nearly 115% at 2011), meaning growth in the subscriber base is likely to be limited. Any further market growth is expected to be driven by prepaid services and fixed-to-mobile churn.

Fitch also notes that the Tunisian exchange rate is a managed float and only slightly eroded against the euro in 2011. Even if the Tunisian Dinar is not fully convertible there are no restrictions on foreign currency transfers abroad, and the company currently has no problems accessing FX.

Tunisiana has been a step ahead of its competition, as both Tunisie Telecom and Divona-Orange are wrangling with internal shareholder issues, but this is expected to change in the mid-term. Fitch believes elevated competition by Divona-Orange will put further pressure in the long term on average revenues per user (ARPU), which seemed to stabilise at Q2-Q311. If the regulator introduces mobile number portability (MNP), which Fitch views as likely in 2012-2013, this will benefit the new entrant. However, the agency believes that in terms of coverage and service quality, Tunisiana still has an edge over the new competition.

Tunisiana's EBITDA margins remained at circa 56.5% at 9M11 and 55% at FY10 despite lower ARPU. Decline in ARPU has been a significant trend since 2007 due to increased competition, but has not impacted the company's operating margins due to market leadership and cost-control measures implemented by the strong management team. The significant delay in the issuance of a 3G license to Tunisiana has not impacted the company's operational performance though the competition has had the license for nearly two years. Fitch notes that despite the heavy capex needed over the next three years, the company will generate healthy FCF before dividends due to strong market position and EBITDA margins.

A steep deterioration in the business environment (eg, a maturing market compounded by tough competition) leading to significantly lower operating margins and higher leverage would be negative for the ratings. In addition, high 3G-related capex or excessive dividend payments could be detrimental for the ratings. Fitch expects leverage (net debt to EBITDA) ratios to remain consistent with the current rating level (below 1x). A multiple notch downgrade of the Tunisian sovereign rating would also have implications for Tunisiana's rating due to its impact on the country ceiling.

Fitch expects Tunisiana's strategic focus to remain on the mobile segment. The ratings do not factor in the potential of significant international acquisitions. Any such development would be treated as event risk.

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Tags: tunisiana  Tunisia