Telecom operators have long been amongst the largest issuers of debt within the non-financial corporate sector. The rated telecom sector in Europe had around EUR300 billion of reported debt as of December 2010. Of this amount, EUR135 billion, or around 45%, will mature over the next four years .
"In particular, refinancing risks will be relatively greater for operators with shorter debt maturity profiles and larger absolute amounts of debt maturing over the next four years," says Iván Palacios, a Vice President -- Senior Analyst in Moody's Corporate Finance Group. "They will also be greater for those domiciled in countries that currently have limited market access and high funding costs due to the sovereign debt crisis," adds Mr Palacios.
Moody's arrived at these conclusions after it reviewed the medium-term refinancing needs of rated European telcos operators by looking at the absolute amount of debt maturities during 2012-15 and comparing it with the companies' total debt, their liquidity sources and their internal cash-flow-generation capacity. Moody's also conducted a theoretical exercise that projects the interest coverage ratios for telcos that are experiencing an increase in their cost of funds as a result of their links with sovereigns under pressure.
In terms of specific issuers, the rating agency said that amongst European telcos, Ireland's Eircom and Greece's OTE are clearly the most exposed to refinancing risks, as reflected in their low ratings.
Refinancing risk throughout this period is manageable for the rest of the rated European telecom service providers. The market's appetite for debt from this sector remains strong, although in some instances companies will need to pay higher interest rates and issue shorter maturities.
Moody's also noted that operators such as Portugal Telecom, Telecom Italia and Telefónica have large medium-term refinancing needs that appear manageable at this point despite market perceptions that the credit quality of these entities is linked to that of the country in which they are headquartered.
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