S&P Negative on Israel's Partner

LONDON -- Standard & Poor's Ratings Services said today it placed all its ratings--including its 'BB-' long-term corporate credit rating--on Israeli mobile phone provider Partner Communications Co. Ltd. on CreditWatch with negative implications, following the company's announcement of a preliminary agreement to acquire 40% of Matav Cable Systems Ltd. (Matav Cable) for $137 million.

"The proposed acquisition would be a significant strategic move for Partner into the cable sector, and the CreditWatch placement reflects the company's subsequent assumption of material debt and exposure to additional business and financial risks that are not currently factored into the ratings," said Standard & Poor's credit analyst Simon Redmond.

The transaction is subject to a number of conditions precedent including execution of a definitive agreement, presently envisaged within 60 days; receipt of regulatory and lender approvals; and acquisition of a significant additional subscriber base by Matav Cable from existing providers.

This last condition raises the possibility of Partner assuming the assets and liabilities of providers other than Matav Cable. Matav Cable's reported total debt was NIS749 million ($169 million) at Sept. 30, 2003, and any additional commitments would weigh on Partner's financial profile still further. At Dec. 31, 2003, Partner had total debt of New Israeli shekels (NIS) 2.6 billion ($600 million).

At Dec. 31, 2003, Partner's lease-adjusted ratio of total debt to EBITDA was about 2.0x. Standard & Poor's would be likely to analytically consolidate the target's debt, on the basis that Partner would be likely to support a strategic investment. Adding the purchase consideration and Matav's debt alone would imply this coverage metric deteriorating to about 3.0x. This would also be coupled with a potentially weaker business risk profile.

To resolve the CreditWatch, Standard & Poor's will focus on the:

The CreditWatch resolution will follow completion or rejection of the transaction. Although significant uncertainties remain at this point, any potential rating reduction is presently thought to be limited to one notch.

Standard & Poor’s

Partner Communications Co. Ltd.