This week Fitch expressed concerns about the credit profile of Telecom.
“[It is] weakening and if this decline is severe, without early indications of support from Government, it may result in a multi-notch widening between Telecom Namibia and the Namibian Government to reflect more imminent liquidity concerns.”
Telecom had not responded to written questions by the time the newspaper went to print.
The negative rating also comes at a time when the company has embarked on a serious media campaign about its GSM mobile network.
“Coinciding with the mobile investment Telecom Namibia plans to upgrade its fibre network taking fibre closer home,” Fitch said, but this “upgrade comes at an awkward time from a cash flow perspective”.
In the financial year ended September 2012, Telecom posted a turnover of N$1.2 billion up by 7.7 percent, which according to the company is the highest rate of increase since 2003.
Ndoroma attributed the growth mainly to increased uptake of Telecom Namibia’s broadband offerings on the back of capital investments amounting to N$746 million since 2009.
Telecom is the dominant player in fixed line telephony, but according to Fitch, this may change soon, following the announcement by MTC that it will roll out fixed line infrastructure, which will present competition for Telecom.
“The prospect for price discounting and lower margins in what amounts to a small population is real and potentially damaging to both entities [Telecom and MTC],” Fitch commented.
The “ambitious plans” by Telecom for a “significant share of the Namibian mobile market by 2017 after its takeover of Leo, Fitch warned, “Is not without significant execution risk”.
The company’s entry into GSM mobile and its subsequent upgrade of Leo’s network as well as the upgrading of its fixed-line infrastructure, in view of Fitch will stretch the company’s “cash flow leverage”.
“If revenue flow growth from the investment is slower than expected or the market more competitive, pressure will quickly grow on the company’s leverage profile and ability to refinance its 2015 existing bond maturity,” the rating agency warned.