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Fitch Places Ooredoo's 'A+' IDR on Rating Watch Negative
June 14, 2017 / 3:24 PM / 3 months ago

Fitch Places Ooredoo's 'A+' IDR on Rating Watch Negative

(The following statement was released by the rating agency) LONDON, June 14 (Fitch) Ratings has placed Ooredoo Q.S.C's 'A+' Long-Term Issuer Default Rating (IDR) on Rating Watch Negative (RWN). Ooredoo's instrument ratings have also been placed on RWN. A full list of rating actions is available at the end of this commentary. This rating action follows that on Qatar's sovereign rating on 12 June 2017 when Fitch placed Qatar's 'AA' Long-Term Foreign- and Local-Currency IDRs on (RWN). Given the continued strength of Ooredoo's links with the State of Qatar (AA/RWN), Ooredoo's ratings are two notches lower than the Qatar's, in accordance with Fitch's Parent and Subsidiary Rating Linkage methodology. Qatar directly and indirectly owns 69% of Ooredoo. KEY RATING DRIVERS State Support: Fitch continues to apply its parent and subsidiary rating linkage methodology in rating Ooredoo. The ratings reflect Ooredoo's strong operational and strategic ties with Qatar. Legal ties are underpinned by the presence of a change of control covenant in Ooredoo's financing documentation should Qatar cease to control the group. This implied state support underpins the strong rating and offsets risks associated with the company's diversification into weaker rated emerging markets, slowing sector growth and M&A. Improved Operating Profile: Ooredoo's revenue grew 1% in 2016, after falling 2% and 3% in 2014 and 2015, respectively, when the company came under pressure from both FX fluctuations and weaker economic conditions in some key markets. The on-going political tension in Iraq has caused significant revenue declines over the past few years. In 2016, performance in Indonesia (25% of 2016 revenue) was satisfactory, while EBITDA losses in Myanmar have narrowed significantly. Domestic Market May Slow: Ooredoo generated approximately 25% of its consolidated revenue in 2016 (and 31% of EBITDA) from Qatar and we expect the contribution from the domestic business to remain significant in the coming years. Domestic revenue and EBITDA trends may weaken, due to a weaker economic environment amid current political challenges, and as competitive pressure continues unabated. Conservative Leverage Profile Likely: Ooredoo's reported consolidated net debt/EBITDA ended 2016 at 2.0x, within the company's target of 1.5x-2.5x. Fitch expects Ooredoo to continue to operate within its target as leverage gradually declines over the next three years. Leverage may increase significantly due to a large acquisition, even though we believe this is unlikely in the near term. However, we believe that if the group breaches these levels and struggles to deleverage within the next 18-24 months, forthcoming equity support from Qatar would help reduce debt and place leverage on a more stable footing. DERIVATION SUMMARY Ooredoo is the leading telecoms operator in Qatar, with operations in the Middle East, south-east Asia and north Africa. The ratings reflect the continued strength of Ooredoo's links with the State of Qatar. Ooredoo's ratings are two notches lower than Qatar's sovereign rating, in accordance with Fitch's Parent and Subsidiary Rating Linkage methodology. Qatar directly and indirectly owns 69% of Ooredoo. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issue include: - No change in the implied support and commitment from, and ownership by, Qatar; - Flat revenue growth in 2017 with limited growth in 2018, assuming no further significant moves in exchange rates; - Stable EBITDA margin in 2017 and 2018. - Capex at around 20% of revenue in 2017 and 2018. We expect capex will largely be financed with internally generated funds. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action - Explicit guarantees from Qatar in favour of Ooredoo, which would likely result in positive rating action on Ooredoo's IDRs, providing that the other parent-subsidiary linkages do not weaken. - Positive rating action on Qatar. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action - A downgrade of the sovereign rating or an adverse change in implied support and commitment from as well as importance to and ownership by, Qatar. - Significant acquisitions that breach the company's maximum net debt/EBITDA of 2.5x without deleveraging below that level within 18-24 months, indicating weaker state support. Sovereign Rating Sensitivities Future Developments That May, Individually or Collectively, Lead to a Removal of the RWN and the Affirmation of Qatar's Ratings - Timely normalisation of Qatar's external relations without an adverse impact on the economy or other credit metrics. Future Developments That May, Individually or Collectively, Lead to a Downgrade - Absence of a timely resolution to Qatar's isolation. - Further escalation of measures against Qatar. - Evidence that the measures taken against Qatar are having a significant impact on the economy or other credit metrics. FULL LIST OF RATING ACTIONS Ooredoo Q.S.C. -Long-Term IDR 'A+', placed on RWN Ooredoo International Finance Limited -Global medium-term note programme and notes under the programme: senior unsecured 'A+' placed on RWN Ooredoo Tamweel Limited -Sukuk notes issued under the programme: senior unsecured 'A+' placed on RWN Contac: Principal Analyst Samer Haydar Associate Director +971 4424 1200 Supervisory Analyst Damien Chew, CFA Senior Director +44 20 3530 1424 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Tajesh Tailor Senior Director +44 20 3530 1726 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Criteria for Rating Sukuk (pub. 16 Aug 2016) here Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016) here Additional Disclosures Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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