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S&P Downgrades Telenor

S&P revises Telenor outlook to negative on Vodafone Sweden acquisition

November 2, 2005

2 Min Read

LONDON -- Standard & Poor's Ratings Services said today that it revised its outlook on Norway-based telecommunications operator Telenor ASA to negative from stable. At the same time, Standard & Poor's affirmed its 'A-' long-term and 'A-2' short-term corporate credit ratings on the company. The outlook revision follows Telenor's announced acquisition of Vodafone Sweden for €1.0 billion ($1.2 billion).

The ratings reflect Telenor's strong fixed line and mobile businesses in Norway, strong cash generation, and prudent strategic and financial management. The ratings are constrained, however, by higher-than-expected near-term leverage, persistent competitive pressures, and by its international mobile businesses, which, while growing and diversified, have weaker business positions and expose Telenor to foreign exchange and country-related risks.

"The acquisition of Vodafone Sweden is consistent with Telenor's pan-Nordic strategy," said Standard & Poor's credit analyst Simon Redmond. "The debt-funded consideration is, however, material for Telenor, especially following a series of transactions in 2005 that could double its reported net debt."

"Accordingly, Telenor has suspended share buybacks and will need to sustain its strong and growing cash generation to return adjusted debt coverage metrics to levels consistent with the ratings," he added.

Telenor's leverage pro forma for the Vodafone Sweden transaction is high for the ratings. We expect, however, that Telenor will sustain operational growth and cash generation, and will use this to deleverage during 2006.

The ratings will likely be lowered if Telenor departs from our expectations over the coming year. These include a clear deleveraging trend, no marked deterioration in operational performance (especially in Norway), sustained strong cash generation, and prudent shareholder distributions. Medium to large acquisitions in the near term, regardless of long-term strategic merit, would almost inevitably result in a lowering of the ratings.

An outlook revision to stable is possible if our expectations are met, although such a situation is unlikely to be well established until second-half 2006, at the earliest.

Standard & Poor’s

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