MOODY'S ASSIGNS A Baa3 ISSUER RATING TO TELEKOMUNIKACJA POLSKA SA (TPSA)
London, October 16, 1998 -- Moody's Investors Service has today assigned a Baa3 issuer rating to Telekomunikacja Polska SA (TPSA) for foreign currency obligations. The rating is at, but not constrained by, the foreign currency sovereign ceiling for Poland. This is the first time that Moody's has assigned a rating to TPSA.
The rating reflects our belief that TPSA will remain the dominant telecommunications operator in Poland and will benefit from its monopoly concession for long distance traffic until 1999 and international traffic until 2003. Moody's also expects that TPSA will continue to benefit from the state ownership of the company, even after partial privatisation, and from a supportive regulatory environment. Moody's takes into account both the opportunities and the challenges associated with TPSA's major investment programme to expand and upgrade its telecommunication network and information systems, improve the quality and range of services offered and boost efficiency. The strong supportive stance of the government is considered to mitigate, to a certain extent, the somewhat strained future financial profile of the company in its peak years of investment. The recently announced intention to introduce a strategic investor at a later stage of privatisation could also be viewed as a positive factor by Moody's.
The Polish telecommunication system, with one of the lowest penetration rates in Europe, at only 20 lines per 100 inhabitants, and a current digitalisation of 57% of local switching capacity, is in significant need of expansion and modernisation. TPSA has therefore very good growth opportunities; over time we expect the company to eliminate its long waiting list, achieve higher penetration rates (a minimum of 25% is targeted for 2000) and improve the technological quality of its network, in so doing we expect it to benefit from the considerable pent up demand and favourable forecast growth rates in Poland. Whilst the regulatory environment is still evolving and there is uncertainty as to the tariff setting mechanism, the government have expressed a strong commitment to the completion of tariff rebalancing before full deregulation takes place. TPSA has a key role to play in the context of the government's stated goal of bringing the telecommunications infrastructure in Poland to a level commensurate with EU countries. We expect that TPSA will retain its strong dominant position even after liberalisation and that market growth should help offset any competitive inroads.
The rating also factors the financial, managerial and technological challenges associated with the successful implementation of TPSA's major investment plans (involving some $5bn of capital expenditure through to 2001), before the Polish telecommunications industry becomes fully competitive. The company has sizeable funding requirements to meet its business plan and this will increase leverage substantially through to a peak in 2000. A delay in the implementation of the planned network upgrade and efficiency improvements - which on standard industry measures are currently very low - may reduce cash flow and weaken debt protection ratios. The company is however on target with over 900,000 new access lines projected for 1998 and appears on course for 1.1mn in both 1999 and 2000. An upgraded network should help TPSA to improve customer satisfaction and refine and expand the marketing of its services, particularly in the business sector.
Moody's issuer ratings are opinions of the ability of entities to honour senior unsecured obligations. Specific debt issues of the issuer may be rated differently, and are considered unrated unless individually rated by Moody's.
TPSA, headquartered in Warsaw, Poland, is the dominant provider of telecommunications services and products in Poland and serves 8 million access lines. It also provides local, long distance, mobile (through its majority stake in Centretel) and international communication services. The company is currently in the process of being partially privatised. The state proposes at this stage to maintain a majority stake, however this may be further reduced in 1999 or beyond.
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