LONDON -- Standard & Poor's Ratings Services said on Friday that it lowered its long-term corporate credit ratings on the leading Belgian telecommunications operator Belgacom S.A. and related entities to 'AA-' from 'AA'. At the same time, Standard & Poor's affirmed its 'A-1+' short-term corporate credit rating on the company, and removed all of the ratings from CreditWatch, where they had been placed on Oct. 6, 2003. The outlook is negative.

The downgrade is based a review initiated on Oct. 24, 2003, following the announcement that Belgacom, its shareholders, and the Belgian state had agreed on the transfer of Belgacom's pension fund to the Belgium state from Jan. 1, 2004, and on a subsequent IPO of approximately 49% of Belgacom's share capital. The IPO is likely to take place in the first quarter of 2004, or by July 2005 at the latest. At Dec. 31, 2002, Belgacom had total debt of €482 million.

"The downgrade reflects the fact that, as a result of the forthcoming IPO and pension fund transfer, Belgacom will leverage its balance sheet to levels beyond previous expectations," said Standard & Poor's credit analyst Leandro de Torres Zabala. "In addition, Standard & Poor's believes that the company's listing could potentially result in a more aggressive financial policy and business strategy."

As a result of the IPO, which will include a share buyback by Belgacom, and the pension fund transfer, Belgacom will make cash payments totaling €2.8 billion (€3.2 billion including dividend payments of about €395 million) within the next few months, including:

Belgacom will finance the €2.8 billion cash outflow and €395 million dividend payment primarily with its current cash balance and internally generated cash, but will also make recourse to external funding.

Following the IPO, Belgacom will be listed in the Premier Marché of the Euronext Brussels stock exchange. The Belgian state will remain the majority shareholder in the company, with a 50%-plus-one-share stake. Following the transaction, Belgacom is expected to have a net debt of about €1 billion.

The negative outlook reflects credit pressures that could arise if, as a result of the listing of the company, Belgacom's financial policy becomes more aggressive, be it through acquisitions or significant payments to shareholders. The group's financial policy will be periodically reassessed by Standard & Poor's after the public offering. The current ratings assume that Belgacom will maintain a very strong business position in its domestic operations, solid operating margins, strong and sustainable free operating cash flow, and debt protection measures compatible with the rating category.

Standard & Poor’s