S&P Rates Poland's Netia

Standard & Poor's Ratings Services gave Poland's Netia its 'B+' corporate credit rating

May 19, 2004

2 Min Read

LONDON -- Standard & Poor's Ratings Services said today it assigned its 'B+' corporate credit rating to Poland-based alternative fixed-line telecommunications operator Netia S.A. The outlook is stable.

The ratings on Netia are constrained by the low growth perspectives in its core voice business, and by strong competition from the incumbent fixed-line operator Telekomunikacja Polska S.A. (BBB/Stable/--), three mobile operators (in terms of fixed-to-mobile substitution), and other independent telecoms services providers.

"The ratings on Netia are further constrained by the company's aggressive debt-funded growth strategy through future potential acquisitions such as that of Dialog S.A., the Poland-based alternative operator. Other potential acquisitions include currently financially constrained alternative telecoms assets in Poland, for which, together with the Dialog acquisition, the company intends to increase its leverage," said Standard & Poor's credit analyst Michael O'Brien.

"It remains to be seen, however, whether Netia's aggressive growth strategy will be successful, particularly as it is expected that such potential acquisitions, notably that of Dialog, would be debt financed," he added.

Furthermore, the company's organic growth is strongly dependent on demand for business data network services for business customers--which is an attractive, but highly competitive market segment--and continued deregulation.

The ratings are supported by the company's improving cash flow generation following the restructuring of its debt and a debt-for-equity swap. The ratings are further supported by Netia's ability to successfully integrate new acquisitions such as Swiat Internet and Regionalne Sieci Telekomunikacyjne El-Net S.A. (El-Net). Furthermore, the company has already paid for and constructed a substantial fiber-optic network throughout Poland, with last-mile access to a large number of customers, both residential and business. Finally, the company has a well-established brand as a telecoms services provider and has demonstrated success in attracting business customers in the liberalized Polish telecoms market.

"It is expected that Netia will approach any debt financing of acquisitions in a prudent manner and maintain a financial profile that will not constrain debt service, and that Netia will have sufficient headroom under any future loan covenants," said Mr. O'Brien.

Furthermore, it is expected that Netia will endeavor to integrate quickly new acquisitions to avoid losses of potential synergies, which might have a negative affect on its financial profile. Although the company plans to expand through acquisition and grow its free cash flow, total debt to EBITDA should not, however, significantly exceed approximately 2x.

Netia Holdings SA

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