International rating agency, Fitch Ratings has placed MTN Group Limited on Rating Watch Negative (RNW), saying the telecoms ratings could be further downgraded based on the $10.1 billion the federal government has asked it to return back to the country.
The attorney general of the country had asked to company to pay back $2 billion in unremitted tax a few days after the Central Bank of Nigeria (CBN) said it should return $8.11 billion which it illegally repatriated over a period of 10 years.
According to Fitch, there was considerable uncertainty surrounding the regulatory developments in Nigeria, as it said the potential impact on MTN's credit profile was hard to predict.
"Under certain scenarios in our analysis, MTN's rating could be downgraded by one or more notches. A lack of visibility in Nigeria could lead us to increase the weight of the Nigerian operating environment in our overall assessment of MTN's rating," it stated.
The rating agency which placed the telecoms company including its 'BB+' Issuer Default Rating (IDR), on Rating Watch Negative (RWN), said the size of the claims was significant and exceeds MTN's total debt of $6.7 billion at the end of the first half of 2018.
The RWN reflects the risk of a potential spike in leverage and liquidity pressures if the company fails to resolve these disputes with the Nigerian government. Fitch noted that "subject to the amount of the final settlement and the payment terms, the company's leverage could increase significantly and liquidity and cash circulation ability could come under pressure, although MTN has said that these allegations are without merit and will be challenging these claims.
"Limited Leverage Headroom: Even if the regulatory claims in Nigeria are withdrawn, MTN has limited leverage headroom in 2019-2021 below its downgrade threshold of 3.0x FFO adjusted net leverage. MTN's leverage stood at 2.4x at the end of 2017. We expect it to increase to 2.7x in 2018 on the back of negative FX trends together with lower dividend contributions from Iran following the re-introduction of the US sanctions. A partial payment of these claims could likely lead to a breach of our leverage downgrade threshold of 3.0x, while a delay in resolving this matters could hamper the amount of dividends MTN Nigeria upstreams to MTN Group."
Fitch noted that while the tax claims was less damaging for MTN's credit profile, as the Nigerian unit generates strong free cash flow that can be used for any potential claim payments, "the claim from the central bank that $8.1 billion should be returned to Nigeria could require MTN to seek funds at the South Africa holding company level and potentially increase leverage at other operating subsidiaries."
