Vodafone Debt Rating Upgraded

The debt ratings agency, Moody's has upgraded Vodafone's long-term rating outlook from negative to stable. The change in outlook to stable reflects the clarification on the total amount invested by Vodafone in connection with its increased equity stake in Cegetel Groupe. Due to Vivendi Universal utilising its preemption right Vodafone only acquired SBC's 15% economic interest in Cegetel at a cost of US$2.5 billion and not the larger BT Group stake which Vivendi acquired at a cost of US$4.4 billion.

Another previous concern related to the proportionately high level of subsidiary indebtedness within the Vodafone group, despite Vodafone's policy of centralising its debt issuance's and facilities at the holding company level. This structural issue had been caused by previous large-scale acquisitions by Vodafone, with a number of large public debt issuance's remaining in the Rated Subsidiaries after the acquisitions. Vodafone's recent repurchase of approximately US$3.96 billion of bonds and US$550 million of bank term loans at the subsidiary level has significantly remedied this issue, with the current maturity schedule expected to further remedy structural subordination.

Moody's also factored subjective issues such as potential shareholder pressure -- which might lead to financial flexibility being used to address shareholder return. Whilst this may continue to be a factor in the future, Moody's believes that Vodafone's part usage of its financial flexibility, by way of increasing its interests in various subsidiaries it does not fully own, has helped ease potential shareholder pressure. Furthermore, Vodafone has always maintained a policy of setting conservative financial controls within which to operate, and Moody's have noted that these internal financial parameters have been improved."

Posted to the site on 10th March 2003