These rating actions follow Moody’s sovereign outlook change, on 4 December, of the Government of Nigeria’s ratings to negative from stable and affirmation of the B2 long-term foreign-currency and local-currency issuer ratings.
Moody’s has subsequently affirmed the B2 corporate family rating (CFR) and changed the outlook to negative from stable on the following companies:
IHS Netherlands Holdco B.V. (IHS)
Change of Outlook to Negative from Stable
The negative outlook on these corporates is driven by the Nigerian sovereign outlook change to negative from stable. Moody’s believes that the credit quality of these companies is inevitably tied to the economic and political developments in Nigeria, with earnings and cash flows generated in Nigeria. The soft Nigerian economic growth has translated into limited expansionary activity in the wider consumer and business environments, leading to deteriorating corporate earnings and weak consumer spending. The rating agency expects low real GDP growth in Nigeria of 2.5% for 2020.
IHS Netherlands Holdco B.V.
The affirmation of the B2 CFR rating reflects the affirmation of the sovereign rating at the same level. The CFR on IHS Netherlands Holdco B.V., a leading mobile network tower provider, is constrained by the complete concentration of EBITDA generation in Nigeria which also exposes the company to volatility in the naira/US dollar exchange rate. The rating action does acknowledge IHS’ resiliency in Nigeria with revenue growth of 11.4% over the 9 months to 30 September 2019.
To manage governance risks, IHS has in place a workplace code and conduct to (1) prevent incidences of bribery and corruption, and (2) abide by sanction laws and regulations. Following the investment in 2011 by the IBRD (World Bank) (Aaa stable) and International Finance Corporation (Aaa stable), steps were taken to align IHS’ standards with international best practice.
IHS Netherlands Holdco B.V.
Given the negative outlook on the Nigerian sovereign, an upgrade is unlikely in the near-term. The outlook could be changed to stable if the Government of Nigeria’s rating outlook is changed to stable.
Subject to an upgrade of the Nigerian government bond rating, an upgrade could be considered if its debt/EBITDA remains below 5.0x (including the subordinated intercompany shareholder loan) and its liquidity is robust on a sustained basis.
The ratings are likely to be downgraded in case of a downgrade of the Government of Nigeria’s rating.
Moody’s would also consider a downgrade if one or a combination of the following occurs:
Debt/EBITDA exceeding 8x (including the subordinated intercompany shareholder loan) or a weakening in IHS’ liquidity.
Adverse contractual, regulatory, economic and/or political developments that materially weaken IHS’ ability to operate profitably on a sustained basis.
Any indication that the company is considering equitising its intercompany shareholder loan, which could constitute a default under our definition.