Moody's may cut Telefonica despite telco scrapping €10bn divvy
RATINGS agency Moody's has said the decision this week by Europe's biggest mobile operator -- O2 owner Telefonica -- to scrap its dividend is "not sufficient" to fully offset negative factors that have led to a ratings review.
Telefonica, which has its headquarters in Spain, has sought to save €10.2bn by scrapping a dividend payment.
It also chopped pay for senior executives this week, citing an "extremely challenging" economic environment.
Moody's said yesterday that the moves, while positive, aren't enough to protect the company from a continuing ratings review.
"Telefonica's announcement that it was cancelling shareholder remuneration for 2012 is credit-positive, as it will reduce its refinancing needs and alleviate part of the negative pressure on credit metrics and thus on its ratings," said the ratings agency.
"However, it is not sufficient to fully offset the negative factors that have led to the current rating review."
Telefonica's dividend cut includes a €1.8bn dividend payment that was slated to be made in November, a €900m share buyback and an intended payment to shareholders of €4.1bn next May.
But Moody's said that Telefonica's rating remained on review for a downgrade.
The news comes as Spain teeters on the brink of an all-out sovereign bailout, and the country's unemployment rate edged higher to 24.6pc.
"The review will take account of the outcome of Moody's review of the Spanish sovereign, including slowing economic activity, liquidity constraints, the scope for increased austerity measures affecting operating fundamentals and increased risks of political interference," it added.
Telefonica said this week that its second-quarter operating income before depreciation and amortisation (OIBDA) fell 6.6pc to €5.35bn.
Its mobile service revenue generated in the first half of 2012 in Spain slumped 16.5pc, excluding the impact of lower- call termination rates.
In Ireland, O2's average revenue per user fell 12.1pc to €29.90 in the second quarter year on year.
The decline was steepest among contract subscribers. OIBDA here slumped 55pc in the second quarter to €59m.