More downgrades expected
By Aline van Duyn in London
Published: April 11 2001 09:04GMT | Last Updated: April 11 2001 17:37GMT
Moody's Investors Service, the rating agency, expects further rating downgrades for incumbent European telecom operators
but expects the sector to remain rated in the investment grade category.
In a report released on Wednesday, Moody's said it had grown more skeptical about the economics of third-generation
mobile phone technology while the capital expenditure needs for this were expected to be high.
"The breakeven point for (these investments) is not likely to be reached before the fourth or fifth year of operation in the
most optimistic scenario," Moody's said.
It said the achievement of debt reduction targets by companies such as British Telecommunications (A2), Deutsche
Telekom (A2), France Telecom (A3), Sonera (A2) and KPN (Baa2) may not be achievable due to poor equity market
sentiment.
"The companies remain vulnerable because of their need to reduce debt at a time when increasing shareholder pressure and
a non-receptive market for new equity issuance and asset sales are going to make that very difficult," said Carlos Winzer,
telecom analyst at Moody's and co-author of the report.
The report said ratings could dip as low as Baa2, or possibly Baa3 for the most highly leveraged. A fall below investment
grade was not foreseen given the continued strong operating fundamentals of the companies' core businesses.
The bond markets have already largely priced in the likelihood of rating cuts from the Single A category into Triple B.
Rating agencies, which cut most telecom operator ratings from Double A to Single A last year, did so on the assumption that
debt accumulated to pay for 3G licences would be reduced fairly quickly.
So far only KPN has had its ratings cut to the Triple B category but it looks increasingly likely that others will follow.
Moody's did not specify when it expected further rating downgrades to occur. |
