Moody’s downgrades IHS Netherlands rating to B2

LAGOS (Capital Markets in Africa) – Moody’s Investors Service, has today downgraded IHS Netherlands Holdco B.V.’s (IHS) corporate family rating (CFR) to B2 from B1. At the same time, IHS probability of default rating was downgraded to B2-PD from B1-PD. The company’s $800 million 9.5 % senior unsecured guaranteed notes due 2021 were downgraded to B1 from Ba3. The outlook on the ratings is stable.

The downgrades follow Moody’s downgrade of Nigeria’s sovereign rating to B2 from B1. For further information, please refer to the sovereign press release “Moody’s downgrades Nigeria’s sovereign issuer rating to B2 with a stable outlook ” (http://www.moodys.com/viewresearchdoc.aspx?docid=PR_374801).

“We have downgraded IHS by one notch to B2 to reflect its reliance on Nigeria for a significant share of its earnings and as such is not immune to the country’s continued constrained economic environment, especially the government’s slow response to addressing these economic pressures,” says Douglas Rowlings, Vice President-Senior Analyst and local market analyst for IHS Netherlands Holdco B.V. at Moody’s.

“However, IHS’s rating on its $800 million senior unsecured notes will continue to benefit from a one-notch uplift above the Nigeria’s sovereign rating at B1, to reflect the structural enhancement provided by the drawdown on a $900 million subordinated shareholder loan,” added Mr. Rowlings.

RATINGS RATIONALE 
IHS’ ratings are constrained by a high concentration of its EBITDA generation in Nigeria — a country with a foreign currency bond ceiling of B1 — with 100% of IHS’s EBITDA generated and received in Nigerian naira. The rating change also considers the volatility in the naira-US dollar exchange rate, with around 80% of IHS’ revenue contractually agreed in US dollars, and with tower equipment and diesel paid in naira, but typically indexed to US dollar pricing from suppliers. Some Nigerian corporates continue to face constraints in accessing the requisite supply of US dollars for conversion from Naira in Nigeria.

The rating downgrade further reflects IHS’ linkage to Nigeria and therefore its limited ability to withstand stress at the sovereign or macroeconomic level.

Moody’s also notes that IHS has proven itself as a savvy tower operator in Nigeria, a country which suffers continual power disruptions, as well as security challenges. This, in addition to its integral and symbiotic relationship with mobile network operators (its end customers), supports a corporate family rating in line with the government of Nigeria. Moody’s also takes into account that IHS is part of a broader tower group which is owned by IHS Holding Limited (unrated and based in Mauritius) thereby providing additional layers of strength to its credit profile. The parent is committed to extending financial support to IHS, if needed, in addition to best-practice operational know-how which is shared from its experience gained through operating over 23,000 towers spanning five African countries.

IHS B2 rating also accommodates the limited scale of its revenue, which was $200 million for the for the first half to 30 June 2017 and high debt/EBITDA at 30 June 2017 of 6.1x (3.6x excluding the intercompany shareholder loan).

RATIONALE FOR THE STABLE OUTLOOK
The outlook on the ratings is stable. We expect that IHS will grow and deliver in accordance with its business model and that the Nigerian regulatory, political and economic environment will remain supportive.

WHAT COULD CHANGE THE RATING UP/DOWN
Moody’s could downgrade IHS further if (1) Debt/EBITDA exceeds 6.5x by the end of 2017, which includes drawdown on the $900 million intercompany shareholder loan facility which we treat as debt, and/or a weakening in IHS’ liquidity profile ; (2) there is any shift in IHS Holding Limited’s willingness and capacity to extend financial support; (3) Adverse contractual, regulatory, economic and/or political developments emerge that materially impact IHS’ ability to operate profitably and sustainably; or (4) there is any indication that the company is considering equitizing its intercompany shareholder loan, which could constitute a default under our definition. Similarly, the introduction of special taxes, levies or other punitive measures in respect of profits or cashflow by the government of Nigeria could put downward pressure on the ratings and/or outlook.

Upward pressure is limited by the concentration of IHS’ cash flow generation to Nigeria.