Fitch Ratings is monitoring the development of Qatar Telecom Q.S.C (Ooredoo ‘A+’/Stable) and Emirates Telecommunications Corporation’s (Etisalat, ‘A+’/Stable) offers to acquire Vivendi SA’s (Vivendi, ‘BBB’/stable) 53% shareholding in Maroc Telecom Group.
We believe that the potential acquisition has no implications on the implied support of or the commitment from the companies’ respective governments, which are the main drivers of the two entities ratings. The UAE own 60.03% of Etisalat and the State of Qatar directly and indirectly holds 68% ownership of Ooredoo.
Fitch continues to apply its parent and subsidiary rating linkage methodology in rating the two entities. Ooredoo’s rating reflects Fitch’s assessment of the sovereign’s creditworthiness due to Ooredoo’s strong operational and strategic ties with the State of Qatar.. This implied state support underpins the strong rating category and offsets risks associated with diversification into weaker rated emerging markets, slowing sector growth and M&A risk.
Etisalat’s rating also reflects Fitch’s assessment of the sovereign’s creditworthiness, given Etisalat’s strong operational and strategic ties with the UAE. Etisalat is 60.03%-owned by the state, and it is stipulated by law that state ownership cannot fall below 60%. Fitch’s approach and top-down methodology takes into account the assumed government support in line with Fitch’s parent and subsidiary rating linkage methodology.
Fitch expects that Ooredoo will continue to operate within its own leverage guidance, which is 1.5x to 2.5x net debt/EBITDA. We recognise that this ratio can fluctuate quite significantly within these limits depending upon any large scale M&A. Fitch draws comfort from its opinion that if the group breached these levels and struggled to deleverage within a short forecast period (12 months), equity support from the State of Qatar would be forthcoming to reduce the position and place leverage levels on a more stable footing.
Fitch also expects that Etisalat’s management will maintain a conservative financial policy, with a maximum gross debt/EBITDA of 2.5x, and continue to generate a substantial majority of group EBITDA from the local UAE market over the short term.
As there is currently little detail on the structure, timing and size or likelihood of the potential transaction, Fitch does not intend to take any rating action at this time. However, the agency will closely monitor the transaction’s possible evolution and evaluate the impact of any changes to Ooredoo and Etisalat business and financial profile. Rating actions could occur if the deal is executed.
