LONDON (Alliance News) - Moody's Investor Service Tuesday changed to negative the outlook on the A3 senior unsecured and provisional Baa2 preferred stock shelf ratings of Vodafone Group PLC.
The decision comes after the major communications company agreed on Monday to acquire Grupo Corporative Ono S.A for EUR7.2 billion, as part of its strategy to build a unified communications provider in Spain.
Vodafone said that it will fund the deal, which is expected to close in the third quarter, primarily with existing cash resources and debt, resulting in deterioration in its credit metrics.
"Our decision to change the outlook to negative reflects the expected deterioration in Vodafone's credit metrics following this acquisition, and that a downgrade of the rating over the next 12 months is likely if the company does not strengthen its financial profile," Moody's Vice President Ivan Palacios said in a statement.
Moody's said that due to the acquisition, Vodafone's adjusted debt/EBITDA will increase by 0.4x, resulting in Vodafone's leverage exceeding the 2.25x level that Moody's had previously indicated for downward pressure on the A3 rating.
Moody's added that it sees as a negative that this major acquisition means deployment of Vodafone's funds to a country where recovery in the telecoms sector is far from certain.
However, Moody's said that the combination of ONO and Vodafone in Spain should lead to substantial
synergies both in terms of costs and capital expenditure and in terms of revenues.
Vodafone shares closed up 0.3% at 226.6911 pence Tuesday.
http://www.moodys.com/page/ataglance.aspx?orgid=809176600 WT.mc_id=NLTITLE_YYYYMMDD_809176600
By Tom McIvor; tommcivor@alliancenews.com; @TomMcIvor1
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