(The following statement was released by the rating agency)
Dec 07 - Standard & Poor’s Ratings Services said today that it had assigned its ‘A’ long-term issue rating to the proposed global medium-term note program to be issued by Qtel International Finance Ltd., a finance vehicle of Qatar-based telecoms operator Qatar Telecom (Qtel) Q.S.C. (Qtel), and guaranteed by Qtel. At the same time, we affirmed the existing ‘A’ debt ratings on Qtel’s other senior unsecured debt.
The assigned rating is conditional on successful issuance and our satisfactory review of the final documentation. The amount, maturity, and coupon are to be determined at placement.
The rating on the proposed senior unsecured notes is in line with the corporate credit rating on QTel and its existing debt ratings. Although we believe that the senior unsecured debt at Qtel’s level is structurally subordinated to debt at Qtel’s various international subsidiaries, we believe this is mitigated by the geographic diversity of Qtel’s assets.
Moreover, we take into account the fact that most of the debt at operating subsidiaries is concentrated on the level of Indosat, while debt at other subsidiaries is significantly smaller. However, if debt at subsidiary levels were to increase meaningfully from the current level, we could lower the rating on Qtel’s senior unsecured debt. This could be particularly the case if we observed an increase of debt at subsidiaries in countries with high political risk and weak financial systems, such as Iraq, as the company has a cross-default clause in its documentation.
The ratings on Qtel, the incumbent fixed-line and mobile telecommunications operator in the State of Qatar (AA/Stable/A-1+), is based on the company’s stand-alone credit profile (SACP), which we assess at ‘bbb’, as well as on our opinion that there is a “high” likelihood that the government of Qatar would provide timely and sufficient extraordinary support to Qtel in the event of financial distress.
Qtel’s SACP is supported, in our view, by the company’s dominant market position and strong operating cash flow generation in fixed-line and mobile telephony in the Qatari telecom market. Ratings support also comes from international diversity in 17 countries. Qtel has established operations in neighboring Gulf Cooperation Council (GCC) countries, including the State of Kuwait (AA/Stable/A-1+) and the Sultanate of Oman (A/Stable/A-1), and in riskier emerging markets such as the Republic of Indonesia (BB+/Positive/B; ASEAN regional scale axBBB+/--/axA-2), Iraq, Algeria, and the Republic of Tunisia (BB/Stable/B).
The ratings are constrained by high leverage at the parent company level and Qtel’s history of aggressive growth outside Qatar and the GCC. In addition, the current consolidated leverage leaves limited headroom for more acquisitions, which are possible based on the current definition of the company’s financial policy (net debt to EBITDA of 1.5x-2.5x).
-- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008