Moody's: Vodafone has stronger credit profile than Telefonica and Telecom Italia
Published on: 12th Dec 2012
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Vodafone has a stronger credit profile than its peers Telefonica and Telecom Italia partly because its 45% equity stake in US mobile operator Verizon Wireless makes it more geographically diversified away from peripheral Europe and because its financial flexibility is higher, says Moody's Investors Service in a Peer Comparison CreditFocus report published today.
The Peer Comparison report explains the drivers for a rating gap between Vodafone Group, Telefonica and Telecom Italia, given that the three telecom operators have a large exposure to European peripheral countries.
"Vodafone derives a large part of its benefits in terms of geographical diversification, stronger financial profile and financial flexibility from its 45% equity stake in US mobile operator Verizon Wireless," says Ivan Palacios, a Moody's Vice President - Senior Credit Officer in Moody's Corporate Finance Group and co-author of the report.
"These benefits support the two-notch difference between Vodafone's rating and that of Telefonica and Telecom Italia," explains Mr. Palacios. "Nevertheless, we recognise Vodafone's structural challenges linked to its mobile-centric business model and position as a market challenger, which are offsetting factors when compared with Telefonica or Telecom Italia."
Moody's report focuses on the most relevant factors that drive the ratings of these companies: (1) geographical footprint; (2) leverage and financial flexibility; (3) liquidity and refinancing risk; and (4) business model and market positioning.
Moody's recognises that Telefonica is the market leader in most of the markets where it operates and is geographically diversified in Latin America and within Europe, but it remains highly exposed to Spain. The deteriorating performance of its Spanish business has weakened its credit metrics, reduced its financial flexibility and increased its refinancing risk due to the potential contagion from the sovereign.
Telecom Italia offsets its limited geographical diversification and weaker credit metrics with its leading position in the Italian market and its very strong operating margins, the highest among Moody's European rated telecom operators. However, its financial flexibility is limited and it is exposed to a weak domestic macroeconomic environment.