Batelco gets Fitch stable outlook
Manama, November 22, 2012
Bahrain's leading telecommunications company Batelco said Fitch Ratings has affirmed its long-term foreign currency Issuer Default Rating (IDR) at 'BBB-' with a stable outlook.
The rating reflects Batelco's leading position in the domestic market, its robust free cash flow (FCF) on a group level despite elevated competition and Ebitda margin pressure, said a statement from Fitch.
Pre-dividend FCF generation is one of the strongest among peers in the Middle East, although the company is relatively small, with moderate international diversification compared to regional peers, it pointed out.
Batelco's IDR reflects Fitch's assessment of the sovereign's creditworthiness, given its strong operational and strategic ties with Bahrain. Batelco is 78 per cent directly and indirectly owned by the Government of Bahrain ('BBB'/Stable), said the ratings agency.
Batelco is a flagship company and a strategic investment for the state as telecommunication is highlighted as a core industry. Fitch's approach and top-down notching methodology takes into account the assumed government support in line with Fitch's parent and subsidiary rating linkage methodology, it stated.
Fitch pointed out that the company's acquisition strategy was focused on mobile and broadband operations in growth markets and management was not interested in capital-intensive greenfield operations.
Batelco has recently expressed interest in Cable & Wireless Communications' Monaco and Islands business division but discussions are still in the early stages. In the event of any acquisitions, Fitch would expect the leverage metric (net debt to Ebitda) to remain within the 2x rating guideline and would then anticipate gradual deleveraging, it stated.
Government involvement in such decisions (expansion outside Bahrain through acquisitions) indicates inherent government support at the current rating level. Fitch also assumes that capital commitment by the Kingdom of Bahrain may be forthcoming for large-scale acquisitions, if needed, the ratings agency added.
Fitch said it expects the company to retain its post-paid subscriber base and a return to rational competition in 2013 that has proven disruptive to all market participants.
The main risk for the company is the domestic operation, as it is facing competition from a new entrant, Viva, operated by Saudi Telecom Company, which is able to compete aggressively on price, it added.-TradeArabia News Service