LONDON (Alliance News) - Moody's Investors Service on Tuesday downgraded Vodafone Group PLC's senior unsecured ratings to Baa2 from Baa1, with negative outlook.
The ratings agency said the rating action concludes the review for downgrade initiated in May 2018, following Vodafone's proposed acquisition of Unitymedia GmbH, the German cable operator owned by Liberty Global PLC.
In addition the blue-chip telecommunications firm bought the Central and Eastern European assets of Liberty's subsidiary, UPC Holding BV, all for an enterprise value of EUR18.4 billion.
Moody's said it now expects Vodafone's underlying earnings before interest, taxes, depreciation, and amortization growth to slow to around 3% in the next two years, which is lower than what Moody's had assumed when the rating was placed on review for downgrade in May last year.
Moody's anticipates Vodafone's Ebitda growth to be mainly supported by accelerating net cost savings of EUR1.2 billion over the next two years.
"The downgrade to Baa2 reflects our expectation that Vodafone's already high leverage will weaken further, even before the proposed acquisition of Liberty's assets, driven by higher-than-expected spectrum investments and slower Ebitda growth," said Moody's Vice President Laura Perez.
Moody's suggested that the main drivers of the slowdown are intensified competition in Spain and
in Italy, as well as a more challenging operating environment in South Africa.
Meanwhile, the negative outlook reflects the deterioration in Vodafone's leverage metrics on completion of the proposed acquisition of certain Liberty's assets. Vodafone's ratings will be weakly positioned in the Baa2 rating category for the next two years on completion of its acquisition, Moody's said.
More positively, Moody's noted that the outlook on the rating could be stabilized if Vodafone implemented actions to strengthen its balance sheet and accelerate its deleveraging path over the next 12 to 18 months.
Given the negative outlook, there is currently no upward pressure on the rating, Moody's said, but the rating could be under downward pressure if following the acquisition of Liberty's assets Vodafone fails to improve credit metrics to levels in line with the Baa2 category.
Vodafone shares were trading 1.8% lower on Tuesday at 137.09 pence each.
Vodafone (VOD)