Fitch Ratings has removed Greek mobile operator WIND Hellas Telecommunications's (WIND Hellas) ratings from Rating Watch Negative where they were placed on October 19th, 2007. Fitch has affirmed the company's Long- and Short-term Issuer Default ratings (IDRs) at 'B' and assigned a Stable Outlook to the Long-term IDR.
The ratings reflect the company's proven free cash flow generation capability in the Greek mobile market as the third-ranked operator and its rising market share at the expense of Vodafone Greece, as well as the potential growth prospects for the local loop unbundling (LLU) segment at newly-acquired fixed-line business Tellas.
The agency expects the company's existing cash balance and EUR250m committed Revolving Credit Facility will provide adequate liquidity for Wind Hellas's share of short-term funding requirements at Tellas until the consolidated group returns to positive FCF generation. Though the agency takes comfort in the strong mobile franchise of Wind Hellas, Fitch also notes that there is a high level of execution risk for the fixed-line business of Tellas, for which 2008 will be a critical year on the LLU front. Fitch has reviewed Wind Hellas assuming the Tellas business is consolidated, but notes that funding requirements of Tellas will be shared with the minority owner, Wind Telecommunications SpA (rated 'BB-' (BB minus)/Negative Outlook).
WIND Hellas' Long-term IDR of 'B' was predicated on Fitch's expectation of rapid deleveraging of the company to approximately 6x EBITDA by end-2007 or early-2008 from 7.1x at YE06. Whilst the company had met this target by Q307 on an adjusted EBITDA basis, pro forma for the Tellas acquisition in Q407, Fitch estimates an increase in adjusted net leverage to 7x by YE07. In addition, the additional funding and capital expenditure requirements for the development of Tellas's LLU business is expected to postpone the further deleveraging of the combined group until 2009. The agency believes that although the credit metrics may be stretched for a 'B'-rated credit in the short-term, the leverage levels are expected to decline towards the 6x level in the next 18 months, which is deemed acceptable for maintenance of the current rating. However, Fitch also notes that failure to delever to less than 6x (net) within the next 18 months or the implementation of further debt-funded acquisitions to bolster the company's position in the LLU segment would be detrimental to the rating.
The future success of Tellas's fixed-line business in Greece will depend on the quality of its fixed network, rising competition in the sector, wholesale line rental and LLU rates, as well as its ability to access the exchanges of the incumbent (Hellenic Telecommunications Organization (OTE), rated 'BBB'/Stable Outlook). Greek broadband penetration is still low by western European standards, so there is opportunity for alternative providers to make an impact in the medium-term. Fitch also notes that the recent measures adopted by the Greek regulator have lowered the barriers to entry to the LLU segment and encouraged competition.
WIND Hellas is the third-largest mobile operator in Greece and also owns the number-four operator Q-Telecom, with a combined 4.4 million customers at Q307. At Q307, Wind Hellas reported LTM total revenues and proforma adjusted EBITDA of EUR1,223m and EUR453m, respectively.
Posted to the site on 6th February 2008
Posted to: www.cellular-news.com/story/29101.php