According to credit rating agency Moody’s, while both telecommunications companies share growing dominance in Africa, and a blind spot in one company is not necessarily the same for another.
“[DATA MTN:MTN Group Limited] holds leading and dominant market positions in many African markets by subscriber numbers, benefiting from a first-mover advantage, while Bharti is the second or third largest operator in the rest of the African continent,” Dion Bate, a Moody’s vice president and senior analyst, said in a statement.
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Bate added that Bharti however faces less exposure to African emerging market cash flows than MTN, as India remains its predominant cash flow driver .
While MTN operates in various countries in the African continent, as well as in the Middle East, it nevertheless faces higher risk within its operating markets than Bharti.
“MTN faces higher emerging market risks as a larger percentage of its cash flows comes from either non-rated or non-investment grade countries, whereas Bharti’s cash flow stream is largely investment grade,” Bate explained.
“However, MTN receives sizable dividends and management fees that are up-streamed from markets outside of South Africa, which improves its debt servicing ability at the holding company level.”
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In terms of approach, Bharti employs an asset-light business model that seeks to optimise operational efficiencies, while MTN follows what Moody’s describes as a traditional approach of taking ownership of its infrastructure.
Bharti’s strong utilisation of outsourcing aspects such as its cellular towers, submarine cables and network infrastructure, in order to expand its 3G, 4G and data services, puts it in the lead.
“While both companies have comparable EBITDA margins in their home markets, MTN’s EBITDA margins in other African countries are markedly higher than Bharti’s owing to its leading market position and first-mover advantage,” said Bate.
“Bharti offers low-priced services in Africa to gain market share which leads to lower profitability and is reflected in the company’s profit margins.”
Where debt is concerned, MTN’s debt profile is managed on a decentralized basis with the majority of its operations managing their own funding requirements, while Bharti operates on a centralised
Treasury basis with almost all its debt issued under its guarantee.