S&P downgrades Bezeq credit rating

Wednesday 14 August 2019 | 12:55 CET | News

S&P has downgraded Bezeq’s credit rating to AA- with a negative outlook. The reduction reflects the firm’s assessment that the company’s commercial profile has decreased on account of intensive competition, and the negative outlook is based on the expectation this competition will also continue in 2019-2020 in all the markets where Bezeq operates, impacting its revenues, margins and cash flow. 

The rating agency said it expects that the likely write-off of up to ILS 1.1 billion in the value of its mobile unit Pelephone will lead to a reduction in the company’s shareholders’ equity. This write-off joins the ILS 1.6 billion impairment the company made in 2018 on the value of D.B.S Satellite Services. According to S&P, the write-offs may point to a future reduction in the cash flows of the subsidiaries in the long-term and a weakening of the company’s commercial profile.

S&P estimates that Bezeq's revenues in 2019 will decrease by 4-8 percent as a result of the drop in revenues in all the company’s operating sectors, including the fixed line, cellular and multi-channel television businesses. 

In the fixed line business, it  believes the trend of reduced demand for fixed lines will continue and the number of subscribers will continue to decline, similar to worldwide trends. Even though the agency expects a slight increase in the number of Pelephone subscribers, it believes the aggressive competition in the market will continue and revenues per subscriber will decrease in the next two years, alongside a reduction in revenues from the sale of equipment. It said the transition of premium customers to cheaper OTT TV services, which rivals Cellcom, Partner and Hot are offering, will continue. On the other hand, the StingTV service of DBS will slightly offset this trend and will show growth in the number of subscribers in 2019.

In the next two years the company will show an adjusted ratio of debt to EBITDA of 3.0-3.7x, the ratings agency expects, which matches Bezeq's current rating. The negative rating outlook reflects the expectation of the continued decrease in the company’s commercial profile in the coming twelve months on account of the challenges facing Bezeq, as well as in the entire telecommunications market including all its sub-sectors, which is expected to lead to a further reduction in Bezeq’s operating performance. 

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Categories: General
Companies: Bezeq / Pelephone
Countries: Israel
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