The agency issued the following statement:
"Madrid, November 16, 2009 -- Moody's Investors Service has today downgraded the long-term issuer rating of Telekom Slovenije d.d. ("Telekom Slovenije") to Baa1 from A3. The outlook on the rating is negative.
Today's action reflects Moody's view that the group's operating performance has deteriorated partly as a result of its transition to a convergence strategy, as well as a consequence of enhanced competitive and regulatory pressures and an adverse macro-economic backdrop, which are affecting growth prospects and could result in profitability deterioration beyond previous expectations. The downgrade also reflects Moody's concerns that this deterioration will delay the group's prospects for reverting to a meaningful positive free cash flow position in 2009, following a substantial capital expenditure programme in 2007 and 2008.
On the basis of revised assumptions for future operating performance, capital expenditure and shareholder distributions, Moody's believes Telekom Slovenije will not likely be able to meet the credit metrics previously anticipated, including moderate leverage levels (as represented by Adjusted Debt/EBITDA below 2x) and significant free cash flow generation over the next few years. Therefore, Telekom Slovenije's developing business risk and financial profile are no longer commensurate with the A3 category. The Baa1 rating assumes the group will retain adjusted RCF/Debt above the 30% range, adjusted Debt/EBITDA below 2.5x and will revert to material positive free cash flow generation. The rating also assumes that the support and dependence factors embedded in the assessment will remain unchanged.
The negative outlook reflects Moody's opinion that there is a degree of execution risk related to Telekom Slovenije's geographical diversification strategy, as future growth is largely dependent on the success of the group's investments in Kosovo and Macedonia, at a time when the domestic business remains under significant pressure. In particular, the negative outlook captures uncertainty over the extent to which execution and integration risk associated with the recent Cosmofon acquisition or more limited cash flow contribution stemming from the group's regionalisation strategy, including potential additional cash calls, together with overall tight liquidity considerations (including limited headroom under bank covenants) could further affect Telekom Slovenije's rating positioning. The outlook could be stabilised once these uncertainties subside and headroom is regained under the rating category.
The last rating action was implemented on 6 April 2009, when Moody's affirmed Telekom Slovenije's A3 long-term issuer rating and changed the outlook to negative from stable.
The principal methodology used in rating Telekom Slovenije was Moody's Global Telecoms Industry Methodology, published in December 2007 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Moody's has also applied the Government-Related Issuer (GRI) methodology. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
Domiciled in Ljubljana, Slovenia, Telekom Slovenije is an integrated telecommunications provider in Slovenia, with a presence in Kosovo, Albania, Macedonia, Bosnia and Herzegovina, Croatia and Gibraltar. In the last 12 months to 30 June 2009, Telekom Slovenije reported operating revenues of EUR847 million and EBITDA of EUR287 million."
