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Moody's Changes Outlook on Telekom Austria's Ratings to Negative
Published on:
Moody's Investors Service has today changed to negative from stable the outlook on Telekom Austria's debt ratings..
"Today's change in outlook reflects our expectation that Telekom Austria's operating performance will remain weak, affected by regulation, fierce competition and the adverse macroeconomic conditions in Austria as well as in other countries in which the group operates," says Carlos Winzer, a Moody's Senior Vice President and lead analyst for Telekom Austria. "In addition, the outlook change reflects the group's recent EUR390 million debt-financed acquisition of YESSS! and other assets, together with additional likely funding needs related to the spectrum auction to take place in Austria in H2," explains Mr. Winzer. "These factors will exert further pressure on Telekom Austria's adjusted financial ratios, which may not be completely offset by the group's recently announced cut in dividends."
Telekom Austria's Baa1 rating is supported by (1) the group's scale; (2) its position as a strong integrated player in its highly competitive domestic telecommunications market and a geographically diversified leading mobile operator in Austria and the countries in which it operates in eastern Europe; and (3) its continued solid cash flow generation. The group has publicly stated capital structure guidance including reported net debt/EBITDA of between 2.0x and 2.5x. Telekom Austria's baseline credit assessment (BCA), a measure of its standalone credit quality, is baa2. The Baa1 rating currently benefits from a one-notch uplift as a result of Telekom Austria being 28.42% government-owned, its moderate level of default dependence and Moody's moderate support assumptions for the group. Moody's has changed the government-related issuer (GRI) default dependence factor to moderate from low. This change does not have an impact on Telekom Austria's final rating.
Moody's expects that Telekom Austria will retain its strong market position in Austria, weathering macroeconomic and competitive pressures in the markets where it operates, and that management will preserve the group's financial strength within the publicly stated ratio guidance. Moody's expects Telekom Austria's revenue to either remain flat or decline slightly in the short to medium term, broadly offset by the group's ongoing efforts to sustain margins and cash flow. In addition, the rating agency would expect the group to manage its strategic investments, as well as shareholder remuneration, within the financial ratio guidance for this rating level.
From a liquidity risk management perspective, Telekom Austria's liquidity profile is becoming more constrained. Moody´s notes that the company has around EUR981 million debt maturing in 2013. In addition, the group will undertake a significant amount of capital expenditure, together with expected spectrum payments in the second half of 2013 and dividends of EUR22 million during the year, as well as the EUR390 million acquisition of YESSS! and other assets. However, at the end of September 2012, Telekom Austria had around EUR506 million in cash and cash equivalents. The group's external liquidity sources include EUR1.0 billion worth of committed long-term bank facilities, which were unutilised as of 30 September 2012, and can be drawn at any time, not being subject to material adverse change (MAC) clauses or financial covenants. Moody´s expects Telekom Austria's funding plans to comfortably address the combined acquisition of YESSS!, other assets and the spectrum licenses.
The negative outlook reflects Moody´s concerns related to Telekom Austria´s future operating performance in an increasingly tough market in which the company will have to continue to weather macro-economic, regulatory and competitive pressures. Also, the negative pressure on the ratings factors in management´s challenges to preserve the company´s financial strength within the publicly stated ratio guidance and fund cash needs resulting from the spectrum auction expected to take place later this year. Moody´s expects Telekom Austria to suffer single-digit revenue declines in the short to medium term, although these will be broadly offset by the company´s ongoing efforts to sustain margins and cash flow.
Tags: [telekom austria] [Austria]
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