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Portugal Telecom Downgraded on Continuous EBITDA Pressures; Outlook Negative

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Standard & Poor's Ratings Services today lowered its long term corporate credit ratings on Portugal Telecom to 'BB' from 'BB '. The short term corporate credit rating was affirmed at 'B'. The outlook is negative.

S&P said that the downgrade reflects its concerns regarding the relentless decline in domestic EBITDA which the rating agency expects to continue this year. They believe that this could prevent deleveraging at the domestic level in the coming years. At the same time, dividends derived from the group's stake in its Brazilian subsidiary are unlikely to increase substantially and those stemming from African affiliates are less predictable and subject to exchange rates.

S&P said that it believes that Portugal Telecom's credit quality will continue to be affected by tough economic conditions in Portugal, high unemployment, constrained household income, and stiff competition, which will likely continue to weigh on wireless revenues and sales to the corporate segment.

In the wireless and enterprise segments, sharp revenue declines--about 10% in third quarter--have been only partly cushioned by solid achievements in the fixed line division, where revenues have grown on the back of the successful TV product and aggressive fiber to the home roll-out. S&P thinks the overall negative trend will continue, and to a larger extent than previously forecast. They now foresee a domestic EBITDA decline of about 6% in 2013, and a continued, but possibly smaller decline, in 2014.

Compounding the situation, they see no upside in cash dividends received from Portugal Telecom's Brazilian subsidiary, given its heavy investment requirements and competitive repositioning.

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Tags: portugal telecom  Portugal