July 5 (SeeNews) - S&P Global Ratings said it has placed its 'BB+' long-term issuer credit rating on Slovenian incumbent telecommunications network operator Telekom Slovenije on CreditWatch with negative implications.
"The CreditWatch placement captures our view that a higher-than-expected dividend payment will significantly reduce Telekom Slovenije's cash balances and require the company to draw on a combination of committed long-term and short-term credit facilities, increasing its reliance on short-term credit facilities if it does not successfully secure additional long-term funding," S&P said in a statement on Wednesday.
On July 10, Telekom Slovenije will pay a dividend of 93 million euro ($108.7 million), nearly twice the amount S&P had expected in its previous base case.
The CreditWatch placement signifies that S&P could lower the rating by one notch if Telekom Slovenije does not succeed in issuing sufficient additional long-term funding within the next six months.
The ratings agency also said:
"The CreditWatch placement follows the company's annual general meeting in May, where management proposed a total dividend pay-out of about €41 million, but the Slovenian sovereign holding that manages the 72% direct and indirect government stake in Telekom Slovenije instead implemented a dividend pay-out of €93 million.
Aside from modest cash balances and its funds from operations (FFO), Telekom Slovenije has an undrawn €70 million revolving credit facility (RCF) due October 2020 and €100 million of credit lines with maturities of between six and 12 months with which to fund both the dividend payment and its ongoing cash needs. Its cash needs include sizable capital expenditure (capex). Although capex could now be reduced, we had estimated it at €140 million-€160 million for the next 12 months, including spectrum costs. Even with lower capex, we anticipate that the company will likely have to draw on both the RCF and short-term lines to pay the dividend.
We acknowledge that the company is currently in the process of securing additional long-term credit lines of up to €200 million and has received government approval to do so, as long as it completes the process by mid-December 2018. The CreditWatch placement incorporates our view that the company's capacity to absorb further liquidity setbacks would structurally weaken if this process fails. Nevertheless, we anticipate that the company's solid credit metrics--our forecast adjusted debt to EBITDA for 2018 and 2019 stands at 2.0x–2.5x--suggests that it will succeed.
One reason why Telekom Slovenije makes frequent use of short-term facilities is that it requires government approval to issue debt with maturities of more than 12 months and the process can be time-consuming.
Our assessments of Telekom Slovenije's business and financial risk are broadly unchanged and were described in our previous summary analysis on Telekom Slovenije, published on Jan. 5, 2018.
We aim to resolve the CreditWatch placement within the next six months, based on the timeframe set by the company and the window for debt issuance set by the government.
We could lower the rating if we no longer view Telekom Slovenije's liquidity as adequate. This will likely happen if it does not strengthen its liquidity profile by issuing sufficient additional long-term funding or agreeing additional RCFs within the set timeframe. This could be combined with additional liquidity relief achieved by making small asset disposals or lowering capex. We could also lower the rating if there were further unexpected and material liquidity outflows. A downgrade would likely be limited to one notch due the company's low leverage and its position as Slovenia's incumbent network operator. This leads us to believe that the company, in cooperation with the government, would have solid access to funding sources and seek to avoid even more serious situations of liquidity distress.
We could affirm the rating if Telekom Slovenije manages to secure sufficient additional long-term funding or agree additional RCFs, potentially combined with cash from smaller asset disposals."
($=0.855353 euro)