Fitch Ratings has assigned Bahrain-based Bahrain Telecommunications Company (Batelco) a long-term foreign currency issuer default rating (IDR) of ‘BBB-‘. The outlook on the IDR is stable.
“Batelco’s IDR reflects Fitch’s assessment of the sovereign’s creditworthiness, given its strong operational and strategic ties with Bahrain. Batelco is 78% directly and indirectly owned by the Government of Bahrain (‘BBB’/Stable). Batelco is a flagship company and a strategic investment for the state as telecommunication is highlighted as a core industry in Bahrain’s long-term 2030 plan. Furthermore, government involvement in material decisions (such as expansion outside Bahrain through acquisitions) indicates inherent government support at the current rating level. Fitch’s approach and top-down notching methodology takes into account the assumed government support in line with Fitch’s parent and subsidiary rating linkage methodology,” Fitch in a statement said.
“The ratings also reflect the company’s leading position in the domestic market, its robust free cash flow (FCF) generation capability at a group level despite elevated competition and falling EBITDA margins in the domestic market at 9M11. Pre-dividend FCF generation capability stands out as the strongest in the Middle East, although the company is relatively small scale, with only moderate international diversification, when compared to the Gulf rated peer group,” it said.
“The stable outlook reflects the limited growth prospects in the domestic telecom market, which has a high level of penetration. Furthermore, Batelco faces increasing competition in the Bahrain telecom market, which is mature with a 150% mobile penetration rate at end of Q3 of the year. The main risk for the company is the domestic operation, as it is facing competition from a new entrant, Viva, operated by Saudi Telecom Company (STC), which is able to compete aggressively on price,” it said.
“Batelco has no debt on its balance sheet with cash and bank balances of BD86.8m at end of Q3 and is expected to remain net cash after the recent cancellation of the 25% Zain KSA acquisition. The company’s leverage metrics are low versus peers in the region and expected to remain low even if it makes minor acquisitions,” Fitch explained.
“An upgrade of the sovereign rating would be a positive credit factor due to strong linkage with the sovereign. Aggressive acquisitions that breach the company’s maximum net debt to EBITDA level or the failure to deleverage to below 2x (net reported leverage) in the short term after such an acquisition would be negative,” it said.