Axian’s ratings are supported by leading or strong positions in countries of operation, strong market growth prospects, experienced management and moderate leverage. However, they are constrained by weak operating environments, with most earnings and cash flow from countries with sovereign ratings of ‘B+’ or lower and subject to material FX risks. FX risks are mitigated by geographic diversification and exposure to local currencies, with 30% of earnings generated in countries whose currencies are pegged to hard currencies.

The Stable Outlook reflects Fitch’s forecast that EBITDA leverage will remain low on continued EBITDA growth. We expect Fitch-defined cash flow from operations (CFO) less capex/total debt to be negative for another two years, but with the reduction in capex intensity, we expect this to start trending to break even.

Key Rating Drivers

Revenue Growth; Stable EBITDA Margin: Axian had double-digit percentage growth in mobile and data subscribers in all its main markets except Senegal (single-digit growth) in 2024, and growth in mobile financial services users across all markets. This supports our estimate of about 15% revenue growth for the year (adjusted for Senegal acquisition from January 2022) and 31% growth in reported revenue.

Axian has lost 1% market share in Senegal, where it is facing competitive pressures. However, Senegal’s pre-IFRS16 contribution to group EBITDA has not been significant enough to affect results. We project that the Fitch-defined pre-IFRS 16 EBITDA margin will gradually increase to 33%-34% between 2024 and 2028. This improvement will be driven by efficiencies from new acquisitions and enhanced operating leverage resulting from increased scale and the expansion of mobile money services.

FCF Constrained: Axian has been investing in network modernisation and expansion programmes in Tanzania, Togo and Madagascar. This includes expanding its mobile financial services segment and building new towers in existing and greenfield sites under its small but growing towers portfolio. We estimate high capex of around 26% in 2024, slowing to 18% in 2026 with completion of the projects. We expect Fitch defined free cash flow (FCF) to trend towards breakeven cash flows from 2026 with negative FCF in 2025 driven by payments related to capex, increased tax burden and minority and ordinary shareholder dividends. Axian retains some flexibility to manage its capital allocation policy.

Acquisition Strategy: Axian is close to doubling its scale by 2026 from 2022, due to organic and inorganic growth. In 2024 Axian agreed to acquire the operations of Kenya-based mobile, internet and TV provider, Wanachi, with operations across Kenya, Tanzania and Uganda. The transaction is likely to close in mid-2025. We do not believe Wanachi will add materially to Fitch-defined pre-IFRS 16 EBITDA pro-forma for 2025. However, it gives Axian additional geographic and service diversification. We expect the company to pursue further opportunistic acquisitions across Africa. Axian’s measured acquisition strategy and continued access to funding support the rating.

Prudent Leverage: Axian generates most revenue in local currencies, with currency risks mitigated by pre-paid revenues, local-currency cost structures and stable currencies in some regions, such as the XOF franc. However, FX risk remains significant as we expect a large part of capex to be in hard currencies, which may result in volatile leverage. We project Fitch-defined EBITDA net leverage to peak at about 1.8x in 2025, due to capex and debt-funded acquisitions. We expect leverage of 1.4x-1.8x over the next four years, supported by a gradual reduction in capex. We consider the leverage profile to be sufficiently prudent to support further acquisitions and manage FX risks effectively.

Growth Potential: Axian operates in countries with a growing population with a higher proportion of young, working-age adults and improving incomes and business investment, albeit with regional volatility. Nevertheless, these factors among others are driving mobile and data penetration and demand for services requiring advanced technological infrastructure. Axian’s growth potential is therefore strong. Its expertise and proven record of organic and inorganic growth support our view that it is well positioned to capture medium-term growth.

Operating Environment Constraints: Axian operates in countries with fairly weak operating environments associated with ‘B+’ and below sovereign ratings. We consider the ratings of corporates operating in these markets partly anchored to the respective sovereign ratings, even in the absence of transfer and convertibility risk. We believe fragile economic structures and uncertain regulation may negatively affect Axian’s business profile. Our rating thresholds for Axian are therefore tighter than for peers operating in developed markets.

Applicable Country Ceiling ‘B+’: Fitch uses its Corporate Rating Criteria and its guidance on exceeding the Country Ceiling (Appendix 6) to assess the risk from the currency mismatch between cash flow and debt (mostly in US dollars) and transfer and convertibility risk. We determine Axian’s effective Country Ceiling at ‘B+’. We estimate that net cash flow (EBITDA used as proxy) generated by Axian in countries with a higher Country Ceiling than that of Tanzania (B+) is insufficient to cover gross interest expense due in hard currency. A positive change in this country mix could lead Fitch to apply a higher applicable Country Ceiling.

Peer Analysis

We benchmark Axian’s rating to a wide group of peers that include various emerging-market telco infrastructure and integrated operators.

Local pan-African peers include integrated operators such as the regional operations of Airtel Africa plc and Vodacom Group Limited-subsidiaries of multinational telecoms operators Bharti Airtel Limited (BBB-/Stable) and Vodafone Group Plc (BBB/Positive), and South African telecoms group MTN Group Limited. All three benefit from extensive scale, and service line and geographical diversification.

Other similarly rated peers include IHS Holding Limited (B+/Stable) and Helios Towers Plc (B+/Positive), which are emerging-market tower companies, and Liquid Telecommunications Holdings Limited (CCC+), a wholesale network and enterprise services provider. All have high exposure to emerging markets with fairly weak operating environments and material FX risks. Helios and IHS benefit from higher debt capacity at the ‘B+’ rating due to their mission-critical infrastructure and lower exposure to volatile direct consumer services, which supports lower overall business risk.

Like Axian, Turkcell Iletisim Hizmetleri A. S’s (BB-/Stable) ratings are constrained by Country Ceiling and sovereign rating considerations. This also partly stems from FX risks.

Key Assumptions

Fitch’s Key Assumptions Within Our Rating Case for the Issuer

— Pro forma revenue growth for 2024 at USD1.4 billion and subsequently high-to-mid single-digit organic growth driven by rising demand for connectivity and mobile financial services.

— Fitch-defined EBITDA margin (adjusted for the application of IFRS16) trending up to around 34% in 2028 from 33% in 2024, supported by revenue growth and moderate synergies

— Average working-capital (including working capital related to capex) at 1%-2% of revenue in 2024-2027

— Capex, including working capital relating to capex, at around 26% of revenue in 2024 declining to 17.5% in 2026

— Common dividend outflows of USD25 million in 2024 and a yearly dividend of USD20 million in 2025-2028,excluding dividends to minority interests, which are treated separately

— Effective interest rate of 8%

— Assumed bolt-on M&A of USD75 million a year across 2026-2028

— Shareholder and related-party loans not treated as debt for credit metrics

Recovery Analysis

The recovery analysis considers Axian as a going concern (GC) in bankruptcy and that it would be reorganised rather than liquidated given its valuable portfolio of assets, including critical infrastructure and strong market positions in its regions.

Fitch would expect a default to come from factors such as higher competitive intensity, increased technological risk, loss of key contracts or licences, adverse regulatory or political actions or considerable currency depreciation in key geographies. Axian may be acquired by a larger company after restructuring that will absorb its network, exit certain business lines or cut back its presence in less favourable geographies, reducing its scale.

Fitch estimates that post-restructuring GC EBITDA for Axian, excluding Togo operations, would be around USD210 million. An enterprise value (EV) multiple of 3.0x is applied to the GC EBITDA to calculate a post-reorganisation EV of USD567 million, after deducting 10% for administrative claims to account for bankruptcy and associated costs. The multiple is broadly in line with other emerging-market telecom operators, but lower than pure infrastructure operators.

The recovery analysis includes a USD420 million senior unsecured bond, a USD292 million drawdown on additional credit facilities and a fully drawn USD42 million revolving credit facility. This debt is assumed to be equally ranking.

We have conservatively assumed that the debt is structurally subordinated to Axian’s local facilities (including letters of credit assumed fully drawn) held at operating companies but excluding local debt at the Togo operating subsidiary.

Our waterfall analysis generated a ranked recovery in the ‘RR3’ band. However, according to our Country-Specific Treatment of Recovery Ratings Criteria, the instrument rating is capped at ‘B+’/’RR4’, due to jurisdictional factors given the African exposure.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

— EBITDA net leverage sustained above 3.0x

— EBITDA interest coverage consistently below 4.5x

— Competitive weaknesses and market-share erosion, leading to continuing weak FCF generation and low visibility on whether CFO less capex/total debt would turn positive from 2026

— Material deterioration in the operating environments of the countries in which Axian operates

— Liquidity risks including challenges in moving cash out of operating companies to service offshore debt

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

— Improvement in the operating environment of Axian’s operating countries as a pre-condition for an upgrade, continued strong market position and EBITDA net leverage sustained below 2.0x on a consolidated basis. We will also monitor leverage excluding Togo operations, which is not part of the guarantor group, for any significant divergence

— CFO less capex/total debt sustained above 7.0%

Liquidity and Debt Structure

We estimate Axian’s cash balance to be around USD164 million at end-2024, with an undrawn revolving credit facility of USD42 million due in2026. Axian has access to an aggregate USD256 million in remaining undrawn capacity from additional facilities to support its investment plan and provide liquidity during periods of negative FCF.

We consider Axian’s refinancing risk to be manageable, supported by conservative leverage, robust interest coverage and available liquidity. The USD420 million bond matures in February 2027, and we anticipate the company will refinance this one year ahead of maturity. The remaining debt, including operating company debt, has a well-distributed maturity schedule between 2025 and 2034.

Issuer Profile

Axian Telecom is a pan-African integrated telecommunications provider with services across mobile, fixed, telecommunications infrastructure and digital technology such as mobile financial services.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch’s latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch’s macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

ESG Considerations

The highest level of ESG credit relevance is a score of ‘3’, unless otherwise disclosed in this section. A score of ‘3’ means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch’s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch’s ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

Additional information is available on www.fitchratings.com

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• Corporate Monitoring & Forecasting Model (COMFORT Model), v8.1.0 (1)

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