BAKU, Azerbaijan, Jun. 26
By Nargiz Sadikhova - Trend:
Fitch Ratings has upgraded Kazakhtelecom JSC's (Kaztel) long-term issuer default rating (IDR) to 'BBB-' from 'BB+', the outlook is stable, Trend reports with reference to the Fitch.
The report said that the upgrade reflects the company's strengthened market position after the acquisition of a 75-percent stake in Kcell JSC at the end-2018 and a remaining 49-percent stake in the joint venture with Tele2 (Tele2/Altel JV) in mid-2019.
The upgrade also reflects its strong financial performance, stabilization of leverage and improved liquidity position, the report said.
“The business and operating profile of Kaztel is underpinned by its leading positions in all telecom segments in Kazakhstan. Kaztel owns most of its network infrastructure, including its fiber backbone network. We project Kaztel's funds from operations (FFO) net leverage to remain below 2.0x over the next three years, supported by robust revenue from mobile subsidiaries and solid profitability,” the report said.
Fitch said it expects Kaztel's capex to be about 22 percent of revenue in 2020.
“Kaztel is in the process of integrating the two mobile acquisitions and synergy realisation is under way. The synergies result from a significant reliance of both mobile subsidiaries on Kaztel's backbone infrastructure. Kaztel's Fitch-defined EBITDA margin is expected to increase to 39 percent in 2020 from 37 percent in 2019 and then gradually improve further to 41 percent by 2023,” the Fitch said.
Further integration of the networks of its mobile subsidiaries should result in further capex savings.
“We expect revenue to grow by mid-single-digits on a pro-forma basis in 2020-2021. We anticipate revenue growth trend to continue in the medium term due to a more rational competitive environment and fairly high inflation. We expect the coronavirus pandemic to have a fairly small impact on Kaztel's performance,” the report said.
Kaztel's ratings reflect the company's credit profile on a standalone basis. Fitch assesses legal, operational and strategic ties between the company and its controlling shareholder, Sovereign Wealth Fund Samruk-Kazyna JSC, as weak.
The ratings are driven by the company's dominant market positions in both fixed-line and mobile segments, robust free cash flow (FCF) generation, moderate leverage and a benign regulatory environment.
The Fitch concludes with the following Key Assumptions regarding the company:
- Mid single-digit revenue growth in 2020 on a like-for-like basis, gradually declining to low single-digits growth by 2023.
- Fitch-defined EBITDA margin of 39 percent in 2020, gradually increasing to 41 percent by end-2023.
- Capex at 22 percent of revenues in 2020, gradually declining to 17 percent in 2023.
- Payment of annual dividends to minority shareholders of Kcell of 2.3 billion tenge ($5.6 million) in 2020, gradually increasing to 4.4 billion tenge ($10.9 million) in 2023.
- Dividend payments at 8.5 billion tenge ($21.06 million) in 2020, increasing to 13 billion tenge - 28 billion tenge ($32.2 million to $69.3 million) in 2021-2023.
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