Is Nigeria's top telco infrastructure company at risk?

Nov 11, 2022|Yomi Ajayi

A fortnight ago, Moody’s Investor Service announced credit-rating downgrades of three non-financial institutions: Dangote Cement Plc, Seplat Energy Plc and IHS Holdings Plc. The global rating agency cited the companies’ significant exposure to Nigeria’s macro and fiscal whims as the basis for the downgrade.

Key Takeaways

Moody’s Investor Service downgraded IHS’ credit rating, alongside two other non-financial companies (Dangote and Seplat), due to their exposure to Nigeria’s woes.
IHS Holdings derives a significant portion of its revenues from Nigeria (in naira), as such currency devaluation and fx shortages negatively impact its earnings.
Despite IHS’ best efforts to mitigate these issues, Moody’s message is clear: Nigeria catches up even with the most financially prudent.

This move wasn’t a huge shock given that, a week before that, Moody’s announced the downgrade of Nigeria’s credit rating from B2 to B3. It cited a deterioration in Nigeria’s fiscal and external positions despite the oil price rally as the basis for its decision. Following that, the rating agency announced it had also decided to downgrade nine Nigerian banks. This time, it was due to the negative impact of the fx shortage and volatile naira on their operations.

Generally, Moodys’ ratings matter to participants in the capital market. The ratings alert investors to a borrower’s ability to repay debt promptly. So whether you’re a big-shot monopoly or an entire government, Moody’s ratings impact how easily you can access debt and on what terms.

The rating accounts for multiple factors. For instance, in the case of the three corporations—Dangote, Seplat, and IHS—Moody’s acknowledged that all three companies had impressive business profiles and prudent financial policies. These are two factors that should boost investor confidence in any company. However, the companies’ exposure to Nigeria’s weakening economy and foreign exchange issues was enough to cast doubts.

Today, we’ll consider one of these corporations: IHS Holdings Plc—the 21-year-old and third-largest telecom infrastructure company worldwide (by tower count). The chart below shows IHS’ significant market share. Other towercos in Nigeria include American Tower Corporation (ATC) Nigeria and Pan African Towers.