Fitch Ratings has today affirmed Orascom Telecom Tunisie (OTT) Long-term foreign and local currency Issuer Default ratings (IDR) at 'BB+'. Fitch has changed the Outlooks for both Long-term ratings to Positive from Stable. Fitch has also assigned OTT a National Long-term rating of 'A(tun)' with a Positive outlook. OTT has no issues outstanding as of December 2007.
OTT's ratings reflect its vastly improved credit profile, driven by the company's elevated operating profitability, and its strengthening position in the domestic market (48.5% local market share at H107) under its popular Tunisiana brand. At year-end 2007, OTT's management expects the total number of mobile subscribers to reach 7.4 million, with the Tunisian market recording a mobile penetration rate in excess of 74%. Tunisie Telecom (TT), the incumbent, and OTT are the two mobile operators in the local market, forming a profitable duopoly. In 2007, Tunisiana captured 56% of gross additions, down from 60% at FY06, adding approximately 500,000 subscribers and increasing its market share to 48.5%.
The Positive Outlooks reflect Fitch's expectation that OTT will continue its strong operating performance in 2007-08, with a 48% EBITDA margin recorded in 9M07, and not spend heavily on additional capex related to any broadband ventures. Fitch expects OTT's strategic focus to remain on the mobile segment even if the company may be interested in broadband opportunities to be developed through wireless technology. There were no dividend payments in 2005 and 2006, and the first dividend payment of TMD80m was made in 2007 in line with Fitch's expectations.
The ratings also reflect the expectation that the business will continue its current dividend policy, with a payout ratio of 75% in 2008 and beyond to its shareholders. In the agency's view, continuation of the strong free cash flow generation and further improvement in leverage metrics, to the 0-0.5x net debt to EBITDA level from the FY07E level of 0.8-1x, would trigger an upgrade.
Fitch also understands that the shareholder dispute between Orascom and Wataniya has been resolved, as an International Chamber of Commerce (ICC) Tribunal has confirmed Wataniya's continuing ownership interest in OTT. The Tribunal did not order Wataniya to transfer its shares in Tunisiana. Thus, Tunisiana's shareholders structure remains unchanged. Orascom Telecom of Egypt and Wataniya of Kuwait each own 50% of OTT and possess equal rights in management control.
OTT's EBITDA margin increased from 38% at FY05 to 49.2% in FY06, benefiting from an expanded subscriber base and operational growth. The decrease in ARPU from TND18.3 in FY06 to an estimated TND16.9 in FYE07 is an inevitable consequence of acquiring such a large number of mainly lower income and prepaid subscribers. Fitch expects intensified competition after the possible entry of a third operator by 2009, and notes that partial privatisation of TT has put further pressure on the tariffs in 2007.
Gross debt decreased to TND440m at Q307 from TND544 at YE06. The management is keen on reducing leverage in the mid-term and the company may reach a net cash position by 2009 if operational performance goes according to plan. Leverage is in line with the rating category, demonstrated by lease-adjusted net debt (net cash to EBITDA on an annualised basis) of 1.1x and 1.3x at 9M07 and FYE06, respectively, versus 3.4x at FYE05. Fitch expects the company to record a net debt to EBITDA metrics of 0.9-1x at YE07 thanks to its free cash generation capacity. The improvement on a yoy basis is a reflection of stronger EBITDA and operating cash flow, as well as debt repayments of TND151m. According to the original amortisation schedule, the company will pay 22.5% of the total debt in the 2008-11 period.
Posted to the site on 4th December 2007
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