Midroog cuts Bezeq bond rating one grade
Midroog cites Bezeq’s special dividend, regulations and competition, which have adversely affected the company’s financial profile.
19 July 12 17:47, Nadav Neuman
inShare

Midroog Ltd. today cut its ratings for Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) bonds one grade from Aa1 to Aa2, but raised its outlook from “Negative” to “Stable”. The downgrade affects the company’s four bond series, 5 through 8.
Midroog says, “The downgrade reflects the materialization of the forecast increase in Bezeq’s financial debt and the slowdown in the debt coverage ratio, partly because of the distribution of the special NIS 3 billion dividend in 2011-13 (about half of which has already been distributed), beyond the company’s policy to distribute all its profits as an annual dividend. The downgrade also reflects a rise in risk in the sector and the realization of the main risks in the communications sector on the competition and regulatory side, which have a negative effect on the company’s financial profile.”
Midroog adds, “The communications regulator in the communications sector has proven his determination in lowering entry barriers to the industry and in encouraging competition to a degree that has increased uncertainty in the sector. To this must be added the aggressive competition, which began in 2011, in the mobile segment between the veteran carriers, which continued into 2012 with the entry of the new carriers and pushed the market into disequilibrium.”
Midroog expects “continued erosion in the financial results of the mobile segment in the medium term, which will be partly offset by operational streamlining and reduced costs structures. This forecast does not overlook Pelephone Communications Ltd., which constitutes a major part of the company’s revenue and cash flow. We also note the Hayek Committee recommendations for regulating a wholesale market for the landline segment.”
Midroog adds, however, “The rating is supported by the company’s business profile, which is derived from the strength of its brand and diversified mix of operations that is spread over most of the communications segments in Israel, with substantial market share in each segment. The company also benefits from the ownership of advanced infrastructures in all of its areas of business, which give it a competitive edge.”
Bezeq’s share price fell 1.5% today to NIS 4.05, giving a market cap of NIS 11.1 billion.
Published by Globes [online], Israel business news – www.globes-online.com – on July 19, 2012