ESAT Telecom Holdings, the company which owns 40 per cent of Esat Digifone, the proposed second mobile phone operator, has recorded losses of £7.5 million in the nine months to the end of September, The Irish Times has learned.

Esat Telecom Holding's current financial position has prompted one leading international ratings agency to assign it a low rating on its debt finance. The rating - which will be used by potential investors to judge the company's financial strength - comes as it tries to sell more than £40 million of loan stock in the US.

Over the nine months under review, Esat Holdings which also owns the telecommunications company Esat Telecom, recorded revenues of £7.8 million from customers using this subsidiary's services. The nine month figures also indicate the holding company holds assets valued at £25.2 million.

Following an initial fund raising in the US last year, Esat Telecom Holding's shareholders are a company owned by Mr Den is O'Brien's (29.4 per cent), US venture company Advent (27.2 per cent), and institutional investors John Hancock Mutual Life Assurance, Metropolitan Life Insurance, Credit Suisse and Soros Capital.

Based on its current financial position, international rating agency Moodys yesterday assigned one of its lowest ratings to the company's planned $70 million (£43 million) loan stock, currently being marketed to US investors.

Moodys Caa rating represents the agency's view that Esat Holdings is more than 40 per cent likely to default on its financial commitments within the next 10 years and is based on its trading results and financial position.

However, the other major international rating agency, Standard & Poors, has taken a more optimistic view on the future of the company, giving its loan stock a B+ rating. It said that it believes the outlook for Esat Holdings is stable. This rating, it added, is dependent on the company's ability to negotiate more favourable interconnection rates with Telecom Eireann.

"A critical assumption in the current rating is that Esat will successfully negotiate lower interconnect rates with Telecom Eireann, and that these rates will be in effect by 1998," Standard & Poors said.

Responding to the ratings, a spokeswoman for Esat Holdings said they held "nothing new" for investors. "Telecommunications companies are financially demanding. Investors know that cash outflows are a number of years down the line for Esat Digifone," she added.

At the weekend, Esat Digifone - the mobile phone operator - denied reports that it faced financial difficulties as a result of delays in finalising a deal with the Garda to use its telecommunications infrastructure to operate its mobile phone service, which is due to begin next month.

According to Moodys, Esat Holding's telecommunication's businesses, presented both financial and operating risks for investors. On its current trading, it stressed that Esat's revenues would not be sufficient to cover its debt servicing charges on a $70 million loan facility, which are due to begin in 2003.

It further warned that operating losses associated with the ongoing development of the company's business would significantly increase its leverage over time. And in the absence of additional (unspecified) cash injections, the company could become insolvent, it said.

Moodys expected that Esat would continue to generate operating losses over the coming year or more, and it warned that there would be further calls on shareholders to fund its ongoing development.

Esat plans to invest $30.4 million (£18.8 million) of the $70 million being raised in the US in Esat Digifone. Some industry analysts believe that this will have to be followed by another substantial investment.

Explaining its rating yesterday, Standard & Poors highlighted the "high degree" of financial risk for the company of funding its network expansions through debt financing. This risk was, however, tempered by Esat management's proven ability to attract high profile business customers, the underlying strength of the Irish economy, and the relative under performance of the State's telecom sector under the previous monopoly market structure", it said.

Although the company should experience business success similar to other, second European carriers, it would continue to require significant levels of debt, Standard & Poors said.

Both ratings assume that Esat Digifone would quickly finalise a deal with the Garda and will be able to begin operating its mobile phone service on schedule next month.