Moody’s up­grades OTE, sta­ble out­look

Financial Mirror (Cyprus) - - FRONT PAGE -

Moody’s In­vestors Ser­vice has raised the cor­po­rate fam­ily rat­ing (CFR) of Hel­lenic Telecom­mu­ni­ca­tions Or­gan­i­sa­tion S.A. (OTE) to Ba3 from B2 and up­graded the prob­a­bil­ity of de­fault rat­ing (PDR) to Ba3-PD from B2-PD, to­gether with the se­nior un­se­cured rat­ings on the global medium-term note pro­gramme (GMTN) and the global bonds is­sued by sub­sidiary OTE PLC. The out­look on all the rat­ings is sta­ble.

“OTE’s up­grade to Ba3 is in line with the sov­er­eign ceil­ing of Greece which was re­cently up­graded,” said lead an­a­lyst Car­los Winzer.

“It also sig­ni­fies the com­pany’s im­proved liq­uid­ity risk man­age­ment, op­er­at­ing per­for­mance and suc­cess­ful delever­ag­ing ef­forts un­der its cur­rent busi­ness plan and against the back­drop of a chal­leng­ing mar­ket en­vi­ron­ment,” added Winzer.

OTE re­mains a pre­dom­i­nantly Greek busi­ness and with 70% of its rev­enues gen­er­ated at home, its rat­ings are con­strained by the coun­try’s sov­er­eign ceil­ing.

OTE has demon­strated a de­gree of re­silience through the re­cent pe­riod of sov­er­eign stress and has taken steps to fur­ther in­su­late it­self from a weak econ­omy, hav­ing lim­ited ex­po­sure to do­mes­tic banks and en­hanced in­ter­na­tional bank­ing re­la­tion­ships. For ex­am­ple, all of the OTE Group’s out­stand­ing debt (bonds is­sued un­der the GMTN and Syn­di­cated Fa­cil­ity at Cos­mote Ro­ma­nia) is gov­erned by English law. Also, OTE has no Greek bank debt ex­po­sure and there­fore is lim­ited to any dis­rup­tion in the na­tive bank­ing sys­tem. These fac­tors have en­abled OTE’s rat­ings to be po­si­tioned higher than the govern­ment’s bond rat­ing, and at the Ba3 sov­er­eign ceil­ing. The rat­ing also fac­tors the po­ten­tial for sup­port from Deutsche Telekom AG (Baa1 sta­ble), Moody’s said in its rat­ings ra­tio­nale.

How­ever, the rat­ing agency stated that at this new rat­ing level, the Ba3 sov­er­eign ceil­ing con­strains the rat­ing of OTE which ad­e­quately fac­tors in the still frag­ile re­cov­ery of the Greek econ­omy. Be­ing four notches above the Caa1 govern­ment bond rat­ing is jus­ti­fied by the un­der­ly­ing char­ac­ter­is­tics and credit strength of OTE, it said.

Moody’s added that OTE’s liq­uid­ity risk man­age­ment has im­proved sub­stan­tially over the past few months. As a re­sult of as­set dis­pos­als and re­fi­nanc­ing in the mar­ket, the com­pany has a cash buf­fer of around EUR 1.15 bln. This buf­fer, to­gether with ex­pected fu­ture free cash flow gen­er­a­tion, com­fort­ably pre­funds OTE’s cash needs be­yond the next 24 months. In ad­di­tion, Moody’s ex­pects that the com­pany will sus­tain im­proved fi­nan­cial ra­tios over the next 24 months. The man­age­ment’s fo­cus has been on op­er­at­ing ex­pen­di­ture con­tain­ment, cash flow gen­er­a­tion (free cash flow ex­pected to ex­ceed EUR 500 mln in 2014) and a pro­gres­sive re­duc­tion in debt, com­mit­ted to a max­i­mum re­ported net debt/EBITDA ra­tio of 1.5x/1.6x over the next few years.

OTE has a strong liq­uid­ity pro­file, which was re­in­forced with a EUR 700 mln six-year fixed-rate bond is­sued on July 7 and there is no re­quire­ment for OTE to is­sue more debt in the near term. In­deed, it will only do so to take ad­van­tage of op­por­tu­ni­ties that may arise in the mar­ket. In Moody’s view, OTE’s in­ter­nal an­nual cash flow gen­er­a­tion of EUR 500 mln and re­ported cash of some EUR 1.3 bln as of March 2014, should en­able the com­pany to cover its cash needs and to­tal re­main­ing debt ma­tu­ri­ties of EUR 11 mln in 2014, EUR 16 mln in 2015 and EUR745 mln in 2016.

OTE is the lead­ing tele­coms op­er­a­tor in Greece, ser­vic­ing 2.9 mln fixed ac­cess lines, 1.3 mln fixed-line broad­band con­nec­tions, 278,742 TV sub­scribers, and 7.4 mln mo­bile cus­tomers. It also of­fers mo­bile tele­phony in Al­ba­nia (2.1 mln cus­tomers), and Ro­ma­nia through Cos­mote, and wire­line ser­vices in Ro­ma­nia through RomT­ele­com. OTE is also in­volved in real es­tate and satel­lite com­mu­ni­ca­tions, and owns 100% of Ger­manos, the largest dis­trib­u­tor of tech­nol­ogy-re­lated prod­ucts in south­east Europe. The Group re­ported rev­enues of EUR 4.1 bln for the 12 months to March 2014.

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