Ratings agency S&P Global Ratings said that mobile tower company IHS Holding's plans to complete an IPO on the New York Stock Exchange will boost the company's growth and diversification strategy.

IHS intends issuing 22.5-million shares, including 80% in primary shares and 20% in secondary shares being offered by some existing shareholders.

IHS's two largest shareholders are pan-African telecommunications group MTN Group, with a 27.5% holding, and investment holding company Wendel, which holds 24.3%.

“Based on their respective company announcements, we understand that MTN will be offering around 1.2-million shares, worth about $26-million, in the IPO, while Wendel will not offer any at this time,” the ratings agency said in a statement, noting that IPO underwriters have the option to purchase 3.4-million shares, including 2.7-million shares from IHS's.

With a public offering price of $21 a share, the total IPO proceeds due to IHS, including the shares being offered to the underwriters, will be about $435-million before underwriting discounts and commissions and IPO expenses.

“We understand that IPO proceeds will mainly fund organic and inorganic growth. While the timing and quantum of contribution from further investments are unclear, we expect the proceeds' use, in line with management's growth strategy, to accelerate IHS's geographic diversification objectives,” S&P Global Ratings commented.

Global Ratings pointed out that, as at the end of 2020, about 77% of the group's earnings before interest, taxes, depreciation and amortisation (Ebitda) came from Nigeria, with estimations that for 2021 to 2023, about 5% of the group's Ebitda will come from new markets outside of Africa.

“However, we consider this contribution insignificant, and note that the rating on the group is constrained by the sovereign rating on Nigeria of B-/Stable/B, the main contributor to the group's performance,” S&P Global Ratings added.

“IHS Holding passes our hypothetical sovereign default stress test and we consider that our rating on the group can exceed the Nigeria sovereign rating, reflecting its ability to raise financing outside of the country and that the majority of its cash is either in hard currencies or in lower-risk jurisdictions.”

However, the ratings agency capped its assessment at one notch above its 'B-' transfer and convertibility (T&C) assessment on Nigeria, given that the group has 70% to 90% Ebitda exposure to that jurisdiction.

“We would consider a positive rating action if the group's growth strategy results in the Ebitda contribution from Nigeria sustainably reducing below 70% and the group diversifies profitably into higher-rated countries, while achieving our base-case financial metrics and passing our rating-above-the-sovereign and T&C stress tests,” it concluded.