Fitch downgrades Spain's Telefonica
Credit ratings agency Fitch Tuesday downgraded Spanish telecoms giant Telefonica and its British subsidiary O2, saying their financial strength may suffer from a takeover of Brazilian company Vivo.
Fitch downgraded Telefonica and O2's key default rating by one notch from A-minus to BBB-plus, indicating that its finances are generally sound but likely to suffer if economic conditions worsen, as many analysts predict.
It said its outlook for Telefonica was stable.
"The combination of the 7.5 billion euros cash price paid for Vivo, the impact of economic conditions and the public targets set for dividends per share, suggest that Telefonica's leverage will remain elevated for some time," said Stuart Reid, a senior director of Fitch, in a statement.
"Telefonica is unlikely to be able to reduce capital expenditure over the coming years," particularly as it considers bidding for major mobile telephone networks in Britain, Spain and Latin America.
Telefonica sealed its takeover of Brazil's biggest cellphone operator Vivo last year by buying out the share held by Portugal Telecom.
This year the Spanish operator reported net profits that tumbled by 16.2 percent in the first half to 3.162 billion euros ($4.45 billion), despite strong growth in its Latin American operations, in particular in Brazil.
It decided in April to shed 6,500 employees in crisis-hit Spain over the next three years due to the declining revenues at home.
"While the company continues to deliver growth in Europe and Latin America, its European businesses are likely to be affected by growing economic uncertainties," Reid said in the Fitch statement.
© 2011 AFP