Rating Actions Taken On Several Corporate Issuers With Exposure To Nigeria

Friday, March 06, 2020 / 07:05PM / by S& P Global Ratings / Header Image Credit: EcoGraphics

S&P Global Ratings said today that it had takenrating actions on corporate issuers that are rated at or above the Nigeriasovereign under its criteria for rating issuers above the sovereign.

This followed our rating action on the sovereign (see"NigeriaOutlook Revised To Negative On Falling Foreign Exchange Reserves; 'B/B' RatingsAffirmed," published Feb. 28, 2020.

Specifically, we took the following rating actions onthe following issuers:

IHS Netherlands Holdco B.V.: We revised our outlook to negative from stable and affirmed our 'B' issuer credit and issue ratings.
MTN Group Ltd.: We affirmed our 'BB+' issuer credit rating and maintained the negative outlook, and affirmed our 'zaAAA' rating.
Mobile Telephone Networks Holdings Ltd.: We affirmed our 'BB+' issuer credit rating and maintained the negative outlook. We affirmed our 'zaAAA' issuer credit rating. We affirmed our 'BB+' issue rating on which the '3(65%)' recovery rating is unchanged.
MTN (Mauritius) Investments Ltd.: We affirmed our 'BB+' issue rating on which the '3(65%)' recovery rating is unchanged.
Seplat Petroleum Development Company PLC: We affirmed our 'B' issuer credit rating and maintained the stable outlook, and affirmed our 'B-' issue rating.

For full details on the rating actions, see theRatings List below.

IHS Netherlands HoldCoB.V.

Our ratings on IHS Netherlands are capped by our 'B'transfer and convertibility (T&C) assessment on Nigeria because the companygenerates 100% of its revenues in Nigerian naira. Therefore, we believe thecompany would be unable to access foreign currency needed to satisfydebt-service obligations in a sovereign stress scenario where the sovereignrestricts corporations' access to foreign currency.

Outlook

The negative outlook on IHS Netherlands reflects thenegative outlook on Nigeria, because we expect we would lower the T&Cassessment on Nigeria if we lowered the long-term foreign currency rating onNigeria. It also reflects our anticipation that the company will maintainstable credit ratios, including debt to EBITDA about 3.0x and funds from operations(FFO) to debt of 25%-30% on average over 2020-2021.

We could lower the rating:

If we lowered our sovereign rating and T&C assessment on Nigeria; or
If IHS Holding group's liquidity were less than adequate, or its leverage were higher than we forecast in our base case, either of which resulted in a weaker assessment of IHS Holding's group credit profile by more than one notch.

We could raise the rating by one notch if we took thesame action on Nigeria. However, there is limited rating upside over the next12 months, given that the rating is constrained by our 'B' T&C assessmenton Nigeria and given that the outlook on the sovereign is negative.

MTN Group Ltd., MobileTelephone Networks Holdings Ltd., and MTN (Mauritius) Investments Ltd.

Overall, our ratings on the entities in the MTN groupare constrained by the foreign currency ratings on South Africa and Nigeria.

The affirmation of the ratings reflects our view thatthe negative outlook already captures the group's economic exposure to Nigeria.With economic exposures to South Africa (foreign currency long-term rating:'BB/Negative') slightly outweighing exposures to Nigeria (foreign currency long-termrating 'B/Negative'), we apply our rating-above-the-sovereign test using theblended sovereign rating of 'BB-'. We view a two-notch difference between thepotential sovereign cap and the 'BB+' issuer credit rating on MTN asappropriate, given the group's forecast liquidity exceeding uses during asovereign stress.

Outlook

The negative outlook reflects our view that theblended sovereign rating was trending lower largely because MTN's Nigerianbusiness has been expanding faster than its South African business. The outlookalso reflects the significant possibility of a downgrade over the next 12months. This could result from:

MTN's earnings mix shifting materially and sustainably, leading to greater exposure to Nigeria, the lower-rated sovereign of its two main markets;
A weaker operating performance, which reduces MTN's liquidity, limiting its ability to withstand our sovereign stress scenario for a 12-month period, such that we can no longer rate the company two notches higher than the blended sovereign rating; or
We downgrade South Africa or Nigeria.

We could also downgrade MTN if the adjusteddebt-to-EBITDA ratio rises above 3x, or if discretionary cash flow fails toturn sustainably positive by 2021.

Seplat PetroleumDevelopment Company PLC

Seplat derives the majority (about 60%) of its revenuefrom crude oil exports. We think the company would be able to service itsforeign currency financial obligations during a potential sovereign T&Cevent, where the sovereign restricts access to foreign currency, because ofhard currency revenue derived from these exports. Seplat passes ourrating-above-the-sovereign and T&C stress tests. Therefore, we would notexpect to lower our rating on Seplat if we were to downgrade Nigeria to 'B-',and we assess that we could rate Seplat up to one notch above the T&Cassessment on Nigeria. We could revise this assessment if we were to envisage acountry specific event that would lead to harsher T&C restrictions.

Outlook

The stable outlook reflects our expectation thatSeplat will maintain FFO to debt of more than 45% under the current rating overthe next 12 months. This is supported by our expectation that continuousproduction will approach 70,000 barrels of oil equivalent per day in 2020following the acquisition of Eland Oil & Gas. If Seplat were to engage inanother sizable acquisition, the rating would likely remain unchanged at 'B' aslong as its adjusted FFO to debt did not drop materially below 45% undercurrent market conditions (or about 30% under less favorable Brent oil prices).

We could lower the rating if militant sabotage oroperational issues arose, such that production was disrupted over the longerterm. We think such a scenario will become less likely over time, once theAmukpe-Escravos pipeline becomes operational and gas production earningsincrease. Rating pressure could also arise if the company undertook anotherdebt-financed acquisition resulting in a less favorable capital structure orweaker liquidity.

We view an upgrade in the coming 12 months asunlikely. An upgrade would depend on a revision to stable of the outlook onNigeria and would be subject to meeting most of the following:

The full availability of the Amukpe-Escravos pipeline;
Visibility around inorganic expansion and the potential implications for Seplat's capital structure;
Adjusted FFO to debt of about 45% under current market conditions (or about 30% under less favorable Brent oil prices); and
At least adequate liquidity.