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OTE's debt downgraded

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Moody's Investors Service has downgraded Hellenic Telecommunications Organization's (OTE) debt ratings, and given them a negative outlook for a further downgrade.

This rating action follows Moody's decision to downgrade the Government of Greece's government bond ratings to Caa2 from Caa1 and foreign-currency ceiling to B3 from Ba3.

"While OTE has taken steps to insulate itself from the Greek economy, the company is predominantly a Greek business with approximately 70% of its revenues generated in Greece," says Carlos Winzer, a Moody's Senior Vice President and lead analyst for OTE. "As such, the downgrade of the government bond rating exerts pressure on the ratings of OTE as the company's outlook will remain closely linked to conditions in its domestic environment."

Today's action reflects Moody's recent decision to downgrade Greece's government bond rating to Caa2, as well as the risk of further deterioration of OTE's business and financial prospects that would likely accompany further deterioration in the Greek economic environment.

OTE remains exposed to developments in the domestic Greek market despite demonstrating a degree of resilience through the recent period of sovereign stress and having taken steps to further insulate itself from the Greek economy. In this regard, the company has limited exposure to domestic banks and enhanced international banking relationships. The rating agency notes that the impact of any disruption in the Greek banking system on OTE will likely be limited as it has no Greek bank debt exposure.

Whilst these factors allow OTE's ratings to be positioned higher than the government's bond rating, and at the B3 sovereign ceiling, the increased uncertainty over whether Greece's new government will come to an agreement with its official creditors in time to meet its near-term funding and liquidity needs exerts negative pressure on Greece's sovereign creditworthiness and, in turn, OTE's ratings.

At B3, OTE's ratings reflect the fact that a non-Greek financial subsidiary is domiciled in the UK and subject to English law issues its debt; (2) the fact that around 30% of OTE's revenues and 25% of its EBITDA are generated outside of Greece; (3) Moody's expectation that OTE will maintain substantial cash balances of around EUR1.15 billion to pre-fund future bond maturities; and (4) the implicit support it receives from its largest shareholder, Deutsche Telekom.

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Tags: ote  Greece