Moody’s may downgrade OTE telecom after gov’t announcement to reduce stake

Moody’s Investors Service yesterday placed on review for possible downgrade the A3 issuer ratings and ratings of the MTN, global bonds and credit facilities issued by the Hellenic Telecommunications Organization SA (OTE). The Prime-2 rating for the company’s short-term debt was not affected and is affirmed. The ratings review process follows the recent announcements made by the Greek government regarding its willingness to sell part of its 38.5 percent majority stake in OTE, which qualifies as a government-related Issuer (GRI) under Moody’s methodology. As a result, Moody’s will review the extent to which this plan represents a change in OTE’s level of support – one of its four rating components under the GRI methodology – which is currently at medium level. The level of dependence at medium level and the baseline credit assessment (BCA) of 9 (on a scale of 1 to 21, where 1 represents the lowest level of credit risk) are not affected and remain unchanged. According to the rating agency, a partial sale of the government’s equity stake in OTE, on its own, would not necessarily represent a change in support. However, Moody’s will focus during the review on understanding the extent to which the government’s relationship with the company may be evolving, resulting possibly in greater distance arising as part of an effort to encourage the company to operate increasingly as a corporate entity with limited influence and intervention from the government. Moody’s will also assess whether the intention of the government is to drop its equity stake to less than 33 percent (the level below which an act of Parliament is required for a further reduction). In addition, Moody’s will also assess the nature of the possible sale and if it is the case, the role to be played by a possible strategic partner within the management of the company, especially if this were to imply a change in the civil servant status of OTE’s employees. Moody’s noted that the government’s public comments on the possibility of a partial sale have been vague to date, with no precise details in terms of the percentage to be sold, the effect that it could have on the civil servant status of the employees or the role that a possible strategic partner could have in the future of OTE. If the percentage ownership were to drop to below 20 percent, Moody’s would have to further assess whether its GRI status remains appropriate and whether the ratings should then reflect the rating equivalent of its BCA level of 9. However, absent a sale which would represent a government’s equity stake below 20 percent, Moody’s expects a maximum downgrade of one notch.