KPN Debt Gets an Upgrade

The debt ratings agency, Moody's Investors Service has upgraded KPN's, senior unsecured long-term debt rating to Baa2 from Baa3 and the subordinated long-term debt rating to Baa3 from Ba1. The ratings were placed on review for further upgrade. The rating action reflects the progress that KPN has made in deleveraging during 2002, and an expectation that KPN's free cash flow generation may enable it to continue to reduce debt in the future.

Moody's notes that total adjusted debt fell from US$29.8 billion to US$23.5 billion during 2002.

Furthermore, KPN has benefited from an increase in operating cash flow generation, moving from US$ 2.8 billion in 2001 to US$4.2 billion in 2002. KPN's fixed line operations, including business solutions, have enjoyed margin growth during 2002, and despite suffering call pre-selection in the local domestic market in August 2002, only suffered a less than 4% market share loss. Operationally, there has been a significant improvement within all three of KPN's mobile businesses. Moody's expects that KPN will continue to lead its domestic mobile market, and feels it is unlikely to suffer from potential consolidation in the Dutch mobile market. KPN also benefited from US$ 1.2 billion reduction in working capital needs, which Moody's does not expect to be repeated, and from a fall in capex by US$1.9 billion, in 2002.

Moody's review will focus on the management team's plan to continue to meet competitive challenges and to drive cost out of their core businesses so as to sustain or improve current levels of free cash flow. We will also focus on plans to deploy free cash flow, including acquisitions. We believe the new management team has taken a more conservative approach to achieving growth in the business, the review will assess the longer term sustainability of that approach if business conditions become more challenging."

Posted to the site on 14th April 2003