OTE Gets a Debt Rating Upgrade on Improving Financial Performance
Published on: 3rd Dec 2013
By: Ian Mansfield
The debt ratings agency Moody's has upgraded OTE's debt ratings by two notches to B2 from Caa1. Concurrently Moody's has upgraded the company's probability of default rating (PDR) by three notches to B2 PD from Caa2 PD.
The outlook on all the ratings remains stable.
The rating action follows Moody's recent decision to upgrade the Greek government's debt ratings. In addition, the upgrade reflects that, under its business plan, the company has made good progress in terms of improving its liquidity risk management, deleveraging, as a result of recent asset disposals, and delivering improved operating performance in a still very challenging market environment.
"OTE remains a predominantly Greek business, headquartered in Athens and with approximately 75% of its revenues in Greece. Its ratings therefore remain to some extent constrained both by Greece's government bond rating and the sovereign ceiling and therefore we have upgraded the company's ratings following the recent upgrade of that of Greece. The company has demonstrated a degree of resilience through the recent period of sovereign stress and has taken steps to further insulate itself from potential stress in the Greek economy, having now cancelled its in-country bank debt facilities and enhanced international banking relationships. These factors would have enabled OTE's ratings to be positioned higher than the government's bond rating, and at or close to the B3 country ceiling. However, there is also the potential for support from Deutsche Telekom, its largest shareholder, which continues to justify positioning the ratings one notch above the country ceiling," says Carlos Winzer, a Moody's Senior Vice President and lead analyst for OTE.
Moody's also noted that OTE's liquidity risk management has improved substantially over the past few months. As a result of asset disposals and a bond issue earlier this year, the company has a cash buffer of around EUR1.3 billion. This, together with expected future free cash flow generation, comfortably prefunds OTE's cash needs beyond the next 24 months.
In addition, Moody's expects the company to sustain improved financial ratios over the next 24 months. The rating agency notes that the company's financial ratios have been on an improving trend over the past two years, driven by management's execution of its business plan, which includes mitigating the impact on the company of the adverse macroeconomic conditions in Greece.
OTE now has a strong liquidity profile and has no need to issue more debt in the near term. Indeed, it will only do so to take advantage of opportunities that may arise in the market. In Moody's view, OTE's internal annual cash flow generation of EUR550 million and cash of some EUR1.3 billion as of November 2013 should enable the company to cover its debt maturities of EUR390 million in 2014 and EUR822 million in 2015.
The company received proceeds of EUR200 million from the sale of HellaSat (April) and in excess of EUR570 million from the sale of Globul (July). OTE used these proceeds to repay EUR714 million of bonds, which matured last August, and to prepay the EUR430 million it had drawn under a revolving credit facility now cancelled.