Naspers Cut to Junk at Fitch as Investments Hurt Earnings


Naspers Ltd. (NPN)’s debt was cut to junk by Fitch Ratings, which said the cost of expanding Africa’s largest media company is hurting earnings.

The long-term and short-term issuer default ratings were lowered one level to BB+ from BBB-, and to B from F3, respectively, Fitch said in a statement.

Naspers reported the slowest annual profit growth in at least six years in June as the company expanded Chinese Internet and African television businesses. Adjusted net income rose 1 percent to 8.6 billion rand ($810 million) in the 12 months through March, in contrast to a 26 percent jump in sales. Cape Town-based Naspers said at the time that it plans to invest in new ventures and to spend “heavily” on adding to existing operations.

Fitch’s move “wasn’t too much of a surprise,” as “Naspers’s earnings outlook is weak because of its investments,” said Kate Turner-Smith, an analyst at BPI Capital Africa in Cape Town.

Naspers rose 1.2 percent to 1,432 rand at 5 p.m. in Johannesburg trading, the highest on record.

The company has been talking with Fitch over the past couple of weeks and is committed to regaining an investment grade rating, Meloy Horn, a Naspers spokeswoman, said in an e-mailed response to questions.

“This downgrade will have a limited impact on our financing position and borrowing costs in the near future,” she said. “Rather frustratingly the Fitch methodology ignores the value of our listed assets, Tencent and stakes valued at $55 billion, which more than adequately covers our $1.5 billion in net debt.”

Fitch also lowered Naspers’s senior unsecured debt to BB+ from BBB-. The outlook is stable, meaning the ratings are unlikely to be changed again soon.

“The downgrade reflects the deterioration in the group’s profitability mainly due to its high development spend as Naspers continues to invest in growth opportunities,” the credit-reporting company said. The move takes into account “higher-than-expected investments in global e-commerce and sub-Saharan pay-TV opportunities.”

Moody’s Investors Service rates Naspers debt at Baa3, the lowest investment grade, with a stable outlook.

Source: Bloomberg By Janice Kew and Christopher Spillane  13 August 2014