Standard & Poor's Ratings Services has assigned its South Africa national scale long-term rating of 'zaAA-' and short-term rating of 'zaA-1' to Vodacom Group.
Standard & Poor's national scale credit ratings provide a current opinion of an issuer's creditworthiness or overall capacity to meet specific financial obligations relative to that of other entities and specific obligations in a given country.
“The ratings on Vodacom are supported by our assessment of the group's business risk profile as "satisfactory," thanks to its resilient and strong position in South African mobile telephony, where it is the leading operator in a maturing market,” the credit ratings organization states. “The ratings are further supported by our view of Vodacom's financial risk profile as "intermediate," reflecting the group's sustained solid free cash flow generation and moderately leveraged balance sheet.
“Constraining the ratings, however, are our expectations for increasing competition and regulatory pressures over the next three years in South Africa, and ongoing sizable infrastructure investment requirements. In addition, growing exposure to higher-than-average political, operational, and currency risks in the countries in which Vodacom operates outside South Africa also constrain the group's credit quality, in our view.”
As of March 2011, Vodacom reported gross consolidated financial debt of R10,4-billion (or about $1,5-billion.
“We anticipate that Vodacom will maintain over the next 12 months a strong market position and demonstrate operating resilience and sound profitability in its domestic mobile operation,” Standard & Poor’s states. “This should enable it to continue to generate strong cash flow from operations. We also expect that Vodacom's percentage EBITDA margin will remain in the mid-30s and that the group will carefully manage various pressures on its international operations and adopt a relatively prudent financial policy to mitigate country risks.
“We view Vodacom's maintenance of a conservative capital structure, including an adjusted gross debt-to-EBITDA ratio below 2.0x, as likely to remain consistent with the current 'zaAA-' rating. Given the group's solid positive FOCF generation, it has some headroom to offset unexpected operating setbacks or for future acquisitions, if appropriately timed and executed.
“We could lower the rating in the case of a material weakening in the group's operating measures and/or business positions, particularly at its core South African operations, and/or a more aggressive financial policy, notably in the size and funding mix of its envisaged acquisitions or in the level of shareholder returns, leading to persistently weaker cash flow generation and credit measures.
“The rating could also come under pressure if the group's liquidity were to remain, over a lengthy period, below levels that we consider ‘adequate’.
“Given Vodacom's business risk profile characteristics, which include a strong market position in a competitive, mature market, with inherent risk of adverse regulatory decisions, and weak credit quality of international operations, we are unlikely to raise the ratings in the medium term.”