S&P raises Ericsson ratings to 'BBB-'

February 28, 2005

2 Min Read

LONDON -- Standard & Poor's Ratings Services said today it raised its long-term corporate credit and senior unsecured debt ratings on Sweden-based telecommunications equipment supplier Ericsson (Telefonaktiebolaget L.M.) to 'BBB-' from 'BB+', following publication of the group's fourth-quarter and full-year 2004 results and reflecting Standard & Poor's review of the medium-term outlook for the mobile network systems industry. The outlook is positive.

At the same time, Standard & Poor's raised its short-term corporate credit rating on Ericsson to 'A-3' from 'B'. At Dec. 31, 2004, Ericsson had gross financial debt of about Swedish krona (Skr) 23.5 billion (about $3.4 billion), including outstanding senior unsecured notes for approximately Skr21 billion.

"Ericsson's return to the investment-grade category after the most challenging crisis yet seen by the telecoms industry over the last three years reflects the reversal of fortunes of the mobile systems market due to the unrelenting expansion of mobile communication technologies worldwide, in addition to the group's successful implementation of a very severe cost restructuring program," said Standard & Poor's credit analyst Leandro de Torres Zabala. "Furthermore, the mobile systems market is on a low growth trajectory and Ericsson is strongly positioned to benefit from this over the medium term given its leading market positions in key second- and third-generation mobile network systems technologies and its dramatically-lower cost break-even point."

The positive outlook reflects the possibility that the ratings could be upgraded further by one notch within the next 18 months. This will depend on the solidity of the trading environment and medium-term prospects, and on Ericsson's ability to maintain leading positions in key technologies and markets; sustain operating margins in the high teens; continue to generate strong, sustainable free cash flow; and maintain a strong net cash position on an ongoing basis. Importantly, although a process of vendor consolidation cannot be ruled out in the current industry environment, the ratings do not factor in any major acquisition by the group.

In addition, if Ericsson continues to maintain a very strong liquidity profile and complements this with clear guidance from management on the way it intends to run the group's liquidity position given its renewed investment-grade status, the short-term rating on the group could be raised to 'A-2' with no necessary upgrade of the long-term rating.

Standard & Poor’s

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