Vodafone Faces Possible Debt Downgrade

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The debt ratings company Moody's has placed Vodafone on review for possible downgrade of its A3 senior unsecured debt ratings.

The Prime-2 short-term rating was affirmed. These rating actions followed the announcement that Vodafone had agreed to acquire a controlling 67% interest in Hutch Essar for a cash consideration of $11.1 billion (GBP5.7 billion), and the assumption of net debt of approximately $2 billion (GBP1 billion).

According to Niel Bisset, Senior Vice President, "The review for possible downgrade reflects our concern that the potential benefits of the Hutch Essar acquisition could be outweighed by the heightened financial risk implied by an increased debt burden and the high level of capital investment likely to be needed in the next two to three years."

The agency said that the review would balance the strategic benefits to the Group from expanding its operations beyond its maturing core markets, with the operational and financial risks implied by such an investment.

"The potential for further acquisitions would also be factored into the review," said Niel Bisset.

The review will take account of Vodafone's plans for the acquired business including: including its targeted growth profile; the extent of increased capital investment requirements and the degree to which these can be limited by planned infrastructure sharing agreements with Bharti Airtel; and the development of its relationship with the Essar Group, whose 33% stake Vodafone is to make an offer to acquire.

Finally Moody's noted that although Hutch Essar should boost Vodafone's revenue and profitability growth rates in the long-term, the Group's short and medium-term cash generation is expected to be impacted by increased financing costs and network investment.

The review will therefore evaluate the extent to which these can be absorbed within the Group's operational outlook or otherwise offset by potential asset disposal proceeds, such as the recent sales of minority interests. "

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Tags: essar group  bharti  essar  debt ratings  infrastructure sharing  hutch 

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