Telkom's rating is up

ADSL South Africa (Broadband South Africa), 17 May 2007

This comes after S&P (Standard & Poor’s Ratings Services) revised its outlook on Telkom from stable to positive and gave it a ‘BBB’ long-term foreign currency corporate credit rating.
 
According to S&P Credit Analyst, Karim Nadji: ‘The outlook revision reflects Telkom's prudent management of its balance sheet, including low reported consolidated financial debt; sustained operating cash flow generation; and strong position in the face of an increasingly competitive environment’ (S&P upgrades Telkom’s outlook to positive, INet-Bridge, 15 May 2007).
 
In other words, Telkom’s management is doing something right despite Telkom’s obvious monopoly status that’s still benefiting the giant to a large extent.
 
Will Telkom be able to keep it up?
 
Yes.
 
Nadji added : “Standard & Poor's expects that Telkom will continue to manage the pace of liberalisation through sustainable cash generation. We also expect the company to maintain adequate operating margins and a conservative capital structure” (S&P upgrades Telkom’s outlook to positive, INet-Bridge, 15 May 2007).
 
In other words, S&P expects that Telkom will be able to keep it up.
 
Can Telkom expect to see another upgrade soon?
 
Yes and no.
 
‘An upgrade would be likely in the medium term if Telkom manages to mitigate growing competition, especially in the fixed-line division, and potentially detrimental regulatory decisions’ (S&P upgrades Telkom’s outlook to positive, INet-Bridge, 15 May 2007).
 
In other words, Telkom can expect to see another upgrade in the medium term should the giant be able to minimise the negative effects of growing competition and regulatory decisions.
 
What could place downward pressure on Telkom’s rating?
 
The following events/factors could place downward pressure on Telkom’s rating:

• ‘margin deterioration’  – A ‘…significant margin deterioration…’ ‘…could put downward pressure on the rating’ (S&P upgrades Telkom’s outlook to positive, INet-Bridge, 15 May 2007).
   
  In other words, a substantial decrease in Telkom’s profit margin could place pressure on Telkom’s rating.

• ‘Vodacom mobile joint venture’ – ‘…a marked strategic shift regarding its Vodacom mobile joint venture with Vodafone Group PLC (A- /Stable/A-2)…’ (S&P upgrades Telkom’s outlook to positive, INet-Bridge, 15 May 2007).
   
  In other words, if things go haywire with Telkom’s ‘Vodacom mobile joint venture with Vodafone Group PLC’ its rating could take a knock.

• Acquisitions  – ‘…large aggressively funded acquisitions…’ (S&P upgrades Telkom’s outlook to positive, INet-Bridge, 15 May 2007).
   
  In other words, large acquisitions marked by unnecessary risk could lead to a lower rating.

• Financial policy – ‘…a more aggressive financial policy could put downward pressure on the rating…’ (S&P upgrades Telkom’s outlook to positive, INet-Bridge, 15 May 2007).
   
  In other words, the adoption of a more risky financial policy could result in a lower rating.

ADSL South Africa (Broadband South Africa) welcomes the revised rating for Telkom although we shall not go as far as to congratulate Telkom’s management team on a job well done.