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S&P downgrades Ooredoo rating; outlook is stable

February 4, 2014

By Santhosh V Perumal/Business Reporter Global credit rating agency Standard & Poor's has downgraded its long-term corporate credit rating on Ooredoo to 'A-' from 'A', even as it held that the telecom company's business risk profile is "satisfactory". The 'A-1' short-term corporate credit rating was affirmed at 'A-1' but the ratings on Ooredoo's debt was lowered to 'A-' from 'A'. S&P, however, stamped a "stable" outlook as it viewed Ooredoo's operating performance "will not be materially weaker" than the base-case projections. The downgrade reflected expectation of higher-than-expected volatility in economic conditions in emerging markets, including negative exchange rate dynamics and Ooredoo's plans to increase capital expenditure (capex). "This has led us to revise our assessment of Ooredoo's financial risk profile to significant from intermediate and the stand-alone credit profile (SACP) to 'bbb-' from 'bbb'," it said. In the revised base-case scenario, S&P forecast weaker EBITDA (earnings before interest taxes depreciation and amortisation) and higher capex in 2014 because the telecom company has to catch up with competitors in some markets. " Ooredoo also needs to finance the rollout in Myanmar , where it has recently obtained a licence. This will delay the achievement of positive free cash flow generation in 2014 and not allow the company to reduce debt, as we previously expected," it said. Projecting Ooredoo's adjusted leverage ratio (debt-to-EBITDA) will be near multiples of 2.6 in 2014, the rating agency said "we see only moderate potential for de-leveraging in 2015." Despite recent weaker performance and high exposure to country risk, S&P still assess Ooredoo's business risk profile as "satisfactory" because of its leading market positions and meaningful geographic diversity. The base-case scenario for 2014 assumes about 1% consolidated revenue expansion, including single-digit growth in Qatar , Kuwait , and Oman , offset by declining business in some emerging markets in hard currency, largely due to the devaluation of local currencies against the dollar or riyal. S&P also assumes a further weakening of the consolidated EBITDA margin to about 40%-41%, due to the cost of the Myanmar rollout, stable to slightly negative profitability across the main operations and rise in the consolidated capex-to-sales ratio to above 30%, resulting in "negative free cash flow generation". The long-term rating on Ooredoo is three notches higher than the SACP of 'bbb-' because S&P saw a "high" likelihood that the government would provide "extraordinary" support to the company in the event of distress. Terming Ooredoo's liquidity as "adequate", S&P said the company enjoys a well-diversified maturity profile, due to proactive refinancing, and it maintains significant cash balances in Qatar . On September 30, 2013 , Ooredoo reported cash balances of QR16.3bn, of which more than two-third was at the parent company level in Qatar . This "significantly" exceeded the company's short-term maturities of QR8.1bn. In addition, Ooredoo maintains a certain amount of 'undrawn' committed credit facilities and issued a $1.25bn sukuk in December, which will further support maintenance of adequate liquidity, even with increased capex in 2014, S&P said. Asserting that the "stable" outlook reflects its expectation that Ooredoo's operating performance will not be materially weaker than the base-case projections; S&P said, "We assume that Ooredoo will focus on organic growth across its portfolio of assets and avoid sizable acquisitions that would meaningfully increase its adjusted debt."

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Source: Gulf Times (Qatar)

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