S&P lowers OTE rating to ‘A minus’

Standard & Poor’s yesterday lowered its long-term corporate credit rating on OTE, attributing the move to the telecoms operator’s vulnerable position in the domestic market and its higher exposure in Romania. The credit rating agency had put OTE on creditwatch in May. Moody’s is also reviewing the telecom operator’s «A2» debt rating for a possible downgrade, with an announcement expected this month. Standard & Poor’s cut OTE’s rating to «A minus» from «A,» with the outlook stable. It also lowered its senior unsecured debt rating on OTE Plc to «A minus» from «A.» OTE’s eroding domestic market share and operations in Romania were principal factors in the downgrading, the credit rating agency said. OTE has seen its market share slide in the past year as a slew of alternative carriers rushed into the market with significantly lower charges. The incumbent’s share of the fixed-line market dropped to 97 percent at the end of March 31. The market share loss is expected to reach 25 percent by the end of 2005. OTE’s Romanian investments, its biggest, has also involved a series of disappointments. The telecoms operator last month received approval from shareholders allowing it to waive default clauses related to CosmoRom. The Romanian mobile company, part of Romtelecom in which OTE holds a majority stake, has run up some 100 million euros in trade liabilities which it has been unable to pay off. «The rating actions reflect OTE’s weaker credit profile as a result of margin pressures in its core Greek fixed-line business, which is the mainstay of the ratings, and as a result of the group increasing its exposure to Romania,» S&P analyst Simon Redmond wrote. He also pointed to OTE’s increased debt burden, weakened coverage measures and lax internal controls that resulted in the activation of a default clause in CosmoRom as contributing factors in the downgrading. OTE’s management «needs to demonstrate its ability to deal competently with diverse challenges, particularly in the Greek fixed-line operations and in Romania,» the credit rating agency said.

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