“The outlook is stable. The downgrade reflects the deterioration in the group’s profitability mainly due to its high development spend as [DATA NPN:Naspers Limited] continues to invest in growth opportunities,” said the global ratings agency, Fitch Ratings, in a statement.
Fitch added that expectations of free cash-flow and earnings before interest, taxation, depreciation and amortisation (EBITDA) over the next three years have been reduced due to Naspers’ higher than expected investments made in global e-commerce and sub-Saharan African Pay-TV opportunities.
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As e-commerce remains Naspers’ second largest and fastest growing division, the group has invested 5.6 billion rand despite the likelihood that the division will not generate a positive cash flow for at least the next 24 months.
The agency said that the majority of Naspers’ development spend went towards marketing and staff costs in order to build a strong market leading position for Nasper’s e-commerce operations for the years ahead.
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On the other hand, Fitch said that Naspers’ BB+ rating was also attributed to its equity stakes in Chinese investment firm, Tencent, and Russian internet company, Mail.ru, which are considerable liquidity sources, valued at 54 billion US dollars and 1.6 billion US dollars respectively.
“Partial stakes in these listed companies can be sold down fairly swiftly, allowing Naspers to repay all of its gross debt,” explained Fitch.
Also, Naspers’ South African pay-TV business continues to grow profitably and is able to fund the group’s investment areas.
Once the new pay-TV building in Johannesburg and East African broadcast facilities are setup, Fitch expects that free cash flow for the company should improve considerably.
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“Increased cash generation should follow growing demand for digital TV services as analogue signals in various African countries are turned off over the next few years.”