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Fitch Affirms Tunisiana at 'BBB-'; Outlook Negative

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Note -- this news article is more than a year old.

Fitch Ratings has affirmed Tunisiana's debt ratings, but said that the outlook on the foreign currency rating is negative. The outlook on the local currency ratingĀ has been revised to stable from negative.

Fitch said that the ratings reflect Tunisiana's leading market positioning and solid cash flow generation. The constraining factors on Tunisiana's ratings are its relatively small size and the fact that its operations are limited to Tunisia, where some regulatory risk exists.

Tunisia's Country Ceiling is still under pressure as is Tunisiana's foreign currency IDR. The Tunisian regulation imposes restrictions on Dinar's convertibility and how much money Tunisian and guests can convert into foreign currency and transfer overseas. However, this has the benefit of reducing the risk of excessive dividends being upstreamed to shareholders.

Unchanged Leading Market Position Despite Orange

Orange won a licence to offer mobile and fixed-voice and data services in 2009, yet its presence has not affected Tunisiana, which has maintained its market share. Orange, previously owned by Investec a Tunisian subsidiary of Mabrouk group (the former President's in-laws) and now taken over by the Tunisian state, has faced challenging times after the change in regime in 2011. This has prevented Orange from capitalising on its first mover advantage. Tunisiana was awarded licenses to launch and operate a 3G mobile network and a fixed-line network in 2012 and this should enable it to defend its market position. Tunisiana had 55% market share, in terms of subscribers, in 2012 compared with 13% for Orange. Orange has gained market share against the incumbent Tunisie Telecom.

Low Growth Prospects in 2013 and 2014

The mobile penetration rate in the country is high reaching 122% in 2012 and growth over the past two years has been driven by higher usage among declining tariffs. Fitch expects the growth over the next two years to be in the low single digit driven by low GDP growth (Fitch estimates 3.5% to 4.0% in 2013 and 2014, respectively). Management expects mobile data to progressively replace mobile voice over the medium term. The use of mobile phones for payments (mobile money) is also offering new opportunities for growth to telecom operators.

Reduced FCF

Tunisiana's FCFs are supported by its high EBITDA margins (sustained above 50%). The issuance of the 3G and fixed-line licenses in 2012 for USD135m has weighed on the company's free cash flow(FCF), but it remained positive at TND 52m, i.e 4.6% of sales (27.9% in 2011) supported by the absence of dividends. Tunisiana will distribute dividends to its shareholders in 2013 and this should take FCF to negative territory.

End of Net Cash Position
Tunisiana has had a net cash position since 2010. The company has been able to fund its capex and other financing needs from operating cash flows up to 2012. The net adjusted debt/EBITDAR ratio has reduced to -0.6x at FYE12 (- 0.5x at FYE11). Tunisiana is about to raise TND220m in the coming weeks (and should raise TND160m before year-end) to fund its 3G and fixed-line licenses, its future capex and satisfy dividends and Fitch expects the net leverage ratio to increase to 0.6x at FYE13, but remain consistent with the current rating. We expect the FFO interest coverage to remain good with a ratio of 36x at FYE13 (690x at FYE12).

Standalone Rating
Ooredoo (A+/Stable) now holds 90% of Tunisiana's capital. However Tunisiana continues to be rated based on the standalone profile of its Tunisiana-branded mobile business in Tunisia. Based on Fitch's parent and subsidiary rating linkage methodology, Fitch notes that there are uncertainties about the remaining 10% stake of Tunisiana, currently held by the Tunisian state (formerly by Princess Holding), which could ultimately be subject to an IPO rather than sold to Ooredoo.

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Tags: tunisiana  Tunisia