Investment rating agency Moody's has placed the longterm debt ratings of Deutsche Telekom and its subsidiary, Deutsche Telekom Finance, on review for possible downgrade. Deutsche Telekom shares closed at €63.51 in normal hours yesterday, down 13 cents from Wednesday's €63.64 close.
Moody's said the review reflects its concerns about the company's expansion plans in the US market and the uncertainty over a possible increase in financial risk because of mobile licence (UTMS) fees and capital expenditure requirements in Europe.
The long-term debts are currently rated as Aa2, which reflects Moody's expectation that the group will gradually reduce its high debt levels and strengthen its debt protection measurements. Moody's will review the ability of Deutsche Telekom to offset the probable high cost of UMTS licences and capital funding with the proceeds from sales of non-core assets. "While we expect management to finance any strategic international investment predominantly with equity, the review will focus on the possible change in Deutsche Telekom's business risk profile resulting from significant integration risks, as well as on the level of financial risk absorption from possible acquisition targets," Moody's said.
The review will balance the risks with positive factors, including the company's strong domestic franchise in Germany and the expectation that management can successfully execute its corporate strategy, according to Moody's.
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