GCR Affirms Airtel Networks AAA (NG)/A1+(NG) Ratings

GCR Ratings has affirmed Airtel Networks Limited’s, Airtel Nigeria, national scale long and short term issuer ratings of AAA(NG) and A1+(NG) respectively stable outlook.

In the rating note, GCR said the affirmed ratings of Airtel Nigeria reflect its sustained strong market position in Nigeria’s high growth telecommunications market, supported by a sound financial profile and access to local and international sources of funding.

The ratings also benefit from the credit profile of the company’s strong and supportive shareholder Airtel Africa Plc, GCR stated. Airtel Nigeria, a wholly owned subsidiary of Airtel Africa, which is also a 56% direct subsidiary of Bharti Airtel Limited – the ultimate parent.

GCR said Bharti Airtel Limited is one of the three largest telecommunications companies globally by subscriber base. A key rating weakness, however, is the high exposure of the company’s loan book to exchange rate volatility, which has led to weaker leverage metrics in the wake of significant devaluation of the Naira, GCR said.

The ratings agency’s analysts noted that at the end of the 2023 financial year, gross debt – including lease liabilities- rose by 92.5% to N1.0 trillion or USD629.8 million due mainly to the local currency devaluation.

It had nearly doubled subsequently to N2.0 trillion or USD1.2 billion as of 30 June 2024, according to the rating note.

Analysts noted that as earnings and cash flows did not grow in tandem with debt, leverage metrics weakened to new levels, and below GCR’s previous guidance.

“We however note that the company has taken steps which resulted in the decline in the proportion of foreign currency debt from 100% as of December 2022 to about 29% as of September 2024”.

Analysts said in the ratings update that this should mitigate foreign currency risk going forward.

According to the rating note, Airtel Nigeria serves about 34.8% of Nigeria’s mobile subscribers as of September 2024, making it the second biggest telecommunications corporate in the country.

Analysts stated that competition amongst the four (4) main market players is intense, albeit there is headroom for industry growth given the low broadband penetration rates (currently under 50%) in Nigeria.

Due to its spectrum holdings and network infrastructure growth, GCR analysts said they believe that Airtel Nigeria is primed to continue to benefit from the industry’s vast growth prospects and to defend its market position.

The company reported a 21.8% revenue growth to N1.1 trillion or USD653.7 million and 21.7% growth in adjusted earnings before interest tax depreciation and amortisation (EBITDA) to N558.8 billion (USD335.7 million) in financial 2023.

The strong performance was due to increased subscriber base and ongoing cost optimisation initiatives across network sites, according to the rating note.

The adjusted EBITDA margin stayed relatively flat at 51.4% in 2023 despite rising costs during the period.

“We expect the growth trajectory to be sustained over the outlook period, although the margin is expected to be slightly pressured by costlier foreign exchange and high energy costs”. In 1H 2024, the margin declined to 49.3%, and we expect that barring material weakening of the Naira would constrain the margin to between 48% and 50%.

“The upside risks to our earnings outlook include the successful renegotiation of all site lease contracts, which would reduce the foreign exchange risk component of pricing,” GCR said. This upside driver also includes regulatory approval for price increments across the sector, and energy cost optimisation across network sites.

GCR said the main downside risk, however, is a further devaluation of the naira. Airtel Nigeria’s liquidity profile is underpinned by robust operating cash flows, supplemented by committed facilities from a range of banks.

As of 30 June 2024, only 22% of debt (including lease liabilities) is short term, while the rest have staggered due dates into the medium term. “Per our projections, the company can meet its immediate debt maturities while committed facilities provide extra support for capital expenditure and other liquidity needs.

“The liquidity assessment also considered the company’s strong access to funding through its relationships with Airtel Africa and Bharti Airtel Limited”. The ratings specifically include modest uplift from Airtel Africa, given the strategic importance of the company to the group.

“Despite the decline in the company’s earnings contribution to the group due to currency devaluation, we believe that Airtel Nigeria remains core to the group’s strategic goals, being the fastest growing subsidiary across the intermediate parent’s territories.

“We continue to see support from the group mainly in the form of credit guarantees. Management resources and platforms such as ICT and treasury services are also shared across the Airtel Africa group.

“Nevertheless, given the robust standalone credit profile of Airtel Nigeria, a modest group uplift is accorded”, the rating note stated.

GCR said the stable outlook reflects our expectations that the financial profile along with parental support will maintain the ratings at the current level over the outlook period. In addition, GCR analysts said they do not expect material changes to the operating environment and competitive position. #GCR Affirms Airtel Networks AAA (NG)/A1+(NG) Ratings