Major Fitch rating boost for Batelco
Manama, May 4, 2013
Global rating agency Fitch Ratings has assigned Batelco's dollar notes, issued by Batelco International Finance No 1 Limited, a final rating of 'BBB-'.
The notes are guaranteed by Batelco. The final rating follows a review of final documentation which materially conforms to information received when the agency assigned the expected rating, the agency said.
Batelco's obligations under its guarantee in respect of the notes are direct, unconditional and unsecured and will rank pari passu and equally with all its other unsecured obligations, Fitch added.
The terms and conditions of the documentation include a change of control clause, a negative pledge clause and a cross default provision.
The change of control clause would be triggered if at any time the Bahrain government ceases to own, directly or indirectly, at least 50 per cent of the issued share capital of Batelco, the agency said.
English law is applicable to the notes.
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.
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 with regional peers, the agency said.
The stable outlook reflects the limited growth prospects in the domestic telecom market. Batelco faces elevated competition in the domestic mobile market, which resulted in declines in the company's domestic revenue and Ebitda in 2012 on a year-on-year basis.
Fitch 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.
Batelco's Issuer Default Rating (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 Bahrain government.
It 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.
The company's acquisition strategy is focused on mobile and broadband operations in growth markets - management is not interested in capital-intensive greenfield operations. Batelco has acquired Cable & Wireless Communications Monaco and Islands business divisions to be completed in two stages pending regulatory approvals for asset transfers.
Stage 1 was substantially completed on April 3.
Fitch would expect the leverage metric (net debt to Ebitda) to remain within the 2x rating guideline and would then anticipate gradual deleveraging.
Government involvement in such decisions (expansion outside Bahrain through acquisitions) indicates inherent government support at the current rating.
In line with its parent and subsidiary rating linkage methodology, Fitch Ratings expects ongoing capital commitment by Bahrain should it be required in the future. – TradeArabia News Service
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