Vodafone rating affirmed, outlook stable - S&P

Standard & Poor's Ratings Services affirmed its long-term single-A and short-term A-1 ratings on Vodafone Group PLC and said the outlook is stable, following Vodafone's announcement that it has agreed to acquire BT PLC's and SBC Communications Inc's stakes in French fixed-line and mobile telecommunications company Groupe Cegetel SA for €6.3bn.

The additional acquisition of Vivendi Universal's 44% interest in Cegetel for €6.8bn would give Vodafone 100.0% ownership of Cegetel.

Vodafone's objective is to take control of SFR, Cegetel's mobile subsidiary.

"Given Vivendi's preemption rights, and the structure of Vodafone's proposal, the possible outcomes range from a scenario in which Vodafone cannot acquire any additional economic interest in Cegetel, such that net debt does not increase, to a scenario in which Vodafone acquires the interests of BT, SBC, and Vivendi, which is the scenario that results in the largest increase in net debt," said Peter Kernan, head of the European telecoms group at Standard & Poor's Corporate Ratings Europe.

"Standard & Poor's has assessed all possible scenarios, on the terms indicated, and today's affirmation covers each scenario."

Given the strength of its free cash flow and the current relatively low level of its lease-adjusted gross debt relative to earnings and cash flow, the ratings on Vodafone can absorb the increases in financial risk and in nonlease-adjusted net debt that would result if it wins control of Cegetel and SFR.

S&P said Vodafone's ratio of adjusted net debt to EBITDA plus dividends from associates is not expected to exceed a level of about 2 times.

If Vodafone can win control of Cegetel and SFR, this will be viewed positively from a strategic and business risk perspective, it added.

"The stable outlook reflects the fact that while Vodafone's event risk is relatively high, as the group is expected to continue considering transactions that would broaden its global mobile telephony footprint, it is expected to continue managing its business in a manner consistent with the ratings," added Kernan.