According to the new Fitch-Ratings the Norway based Telenor’s Outlook has been declared stable from negative. The Long-term Issuer Default rating (IDR) and senior unsecured rating are acknowledged at ‘BBB+’ respectively and the Short-term IDR at ‘F2′. These new ratings have shown declined concerns that Telenor’s capex-consuming and yet unprofitable Greenfield project in India will lead to material descent in its credit profile.
Execution risks still remain and may result in larger operating cash flow (EBITDA net of capex) loss even before getting by the company’s initial guidance of Indian Rs. 155 billion, but given the improved results of the company in other markets, Fitch now expects Telenor will continue generating positive pre-dividend free cash flow (FCF) and will be able to maintain its low leverage even after the planned share buybacks in 2010. While the strengthened EBITDA scope is likely to be reduced to 27%-28% at end-2010 from 32% at end-2009 because of the negative contribution from the Indian operations, this should remain within the confines of the current ratings.
The new Fitch-Ratings are due to the unwavering operating performance and strong market positions in most of its operating areas, including conventional Nordic fixed-line and mobile markets and emergent Asian mobile markets. These ratings also take into account the company’s strong cash flow generation and hale and hearty liquidity. More over, the ratings take into consideration Fitch’s anticipation that Telenor’s shareholder compensation policy, including share buyback programs, should not lead to negative FCF for an unrelenting epoch and/or raise leverage materially.
In 2009, due to cost control, smaller dividends and capex diminution, Telenor showed strong FCF generation. The Nordic markets contributed 43% of consolidated revenue and 45% of consolidated EBITDA, aided by strong performance in mobile. Carried by the growing mobile data usage, Nordic mobile business will likely remain resilient.
Emerging markets, bear to the risks of high volatility and local currency devaluation in the current challenging economic environment, are contributing an increasing share to Telenor’s consolidated revenue – at 41% at end-2009, compared with 34% at end-2006. While Telenor’s H110 results showed substantial improvement in Asian markets, the central and eastern European markets are seeing slower recovery.
Although most of Telenor group’s debt is concentrated at the holding company and Telenor generally does not guarantee its subsidiaries’ debt, emerging market risks remain a constraint on Telenor’s ratings as they present ownership, regulatory and political risks, which limit Telenor’s ability to control cash flows in ancillaries.
Fitch recognizes abridged legal risks subsequent resolution of Telenor’s corporate disagreement with Alfa Group. The organization takes a positive view of merging the two companies’ Russian and Ukrainian assets in a new joint venture Vimpelcom Ltd, as this may ultimately result in higher dividend income. Fitch would likely view sustained evidence of regular dividend flows from the JV as being credit-positive. Fitch does not expect that Antimonopoly Committee of Ukraine’s pending revision of its permission to merge Telenor’s and Alfa Group’s Ukrainian assets will lead to material adverse impact on Telenor.
