Moody’s Upgrades Helios Towers’ Rating with Stable Outlook
Moody’s Ratings has upgraded Helios Towers plc’s corporate family rating (CFR) to B1 from B2, it said in a latest announcement. At the same time, the company’s probability of default rating (PDR) was upgraded to B1-PD from B2-PD and the rating of the outstanding $650 million backed senior unsecured notes issued by HTA Group, Ltd. and due in 2025 was upgraded to B1 from B2.
The outlook remains stable for both entities, according to the global ratings firm. It said the rating action reflects Moody’s view that Helios Towers’ credit profile has sustainably improved, following the company’s successful deleveraging over 2023.
Helios Tower announced plan to slow down expansion through acquisitions over the next 2 years, which Moody’s expects will lead to positive free cash flow generation from 2024 onwards.
According to the rating note, Moody’s adjusted debt to earnings before interest tax depreciation and amortization (EBITDA) reduced to 5.1x at the end of 2023 from 6.4x a year earlier.
Taking these into consideration in its assessment, Moody’s expects that the ratio will further reduce to 4.5x by the end of financial year 2024.
The global ratings firm said the company has established a track record over the past years of consistent strong organic growth in dollar-terms through tenancy ratio expansion.
At the same time it has effectively mitigated depreciation of local currencies through denominating contracts either directly in dollar or hard-currencies or through automatic escalators linked to currency depreciation, inflation or power price increases.
Through acquisitions, including of a portfolio of towers in Oman (Ba1 stable) at the end of 2022, Helios Towers has also diversified its geographic exposure to lowly rated sovereigns, the rating note stated.
At the same time the sovereign credit profiles of Helios Towers’ main countries of operation, Tanzania and Democratic Republic of the Congo have improved over the past 18 months.
The company’s liquidity is good with no material maturities until December 2025 and ample liquidity sources including a cash balance of $107 million and $391 million available undrawn credit facilities as of December 2023, Moody’s said.
It said the remaining outstanding $650 million under the company’s $975 million international bond becomes due in December 2025 and Moody’s expects Helios Towers will refinance this maturity well ahead of time.
The B1 CFR continues to be supported by the company’s operations of telecom towers across nine countries in Sub-Saharan Africa and the Middle East, with strong market positions in seven of those countries.
This is also supported by its track record of strong tower and co-location growth resulting in strong Moody’s adjusted EBITDA margin of 51.1% in 2023.
The upgrade of the company’s ratings is also driven by its annuity-like contracted cash flow stream underpinned by long term contracts (average remaining contract life of 7.8 years representing $5.4 billion in future revenue) with leading mobile network operators (MNO) that benefit from automatic price escalators for increasing power prices.
It takes into consideration inflation or foreign currency depreciation; moderate leverage for the telecom tower industry of 5.1x as of 2023.
According to the rating note, Moody’s expects leverage for telecom tower industry to reduce to 4.5x by the end of 2024. It expects the company to become free cash flow generative in 2024 as it reduces spending on expansion and refocuses on organic growth through colocations.
The rating is constrained by the high risk sovereign environments where the company operates, notably the Democratic Republic of the Congo, Ghana and the Republic of the Congo, which account for around 40% of EBITDA as of 2023, as well as its mid-tier scale with a tower portfolio of 14,097 sites generating revenue of $721 million for 2023.
According to Moody’s, the stable rating outlook assumes that Helios Towers will continue to deleverage further towards 4x over the next 1-2 years, as the company reduces acquisition spending and starts generating positive free cash flow.
The outlook also assumes successful refinancing of the company’s debt maturities well ahead of time, as well as supportive regulatory, political and economic environments and unrestricted ability to repatriate funds from the countries of operations.
