MOODY'S ASSIGNS Aa3 RATING TO MTN PROGRAM OF BELGACOM S.A..
Moody's Investors Service has assigned a Aa3 long-term debt rating to the US$ 1 billion Euro Medium Term Note Program of Belgacom Finance S.A., unconditionally and irrevocably guaranteed by Belgacom, S.A. de Droit Public (Belgacom). The rating factors the company's strong business position, financial strength and market growth prospects. Also an important consideration in the rating is the significant amount of implicit government support as well as the close link to the government resulting from its 50% plus one share equity stake, together with the special legal nature of this limited liability company which is subject to the public law of Belgium. This is the first-time that Moody's has assigned a rating to Belgacom. The rating outlook is stable.
Moody's expects Belgacom to continue to gradually improve its financial strength and to retain a strong market position despite increasing telecommunications competition in Belgium. Key to Belgacom's future financial and business strengths, in the recently liberalized market, will be management's ability to streamline its operating costs, improve efficiency and achieve customer loyalty through a high-quality, competitively-priced range of services. An important challenge facing the company will be to improve its market perception through improved customer service, lower prices, and successful marketing campaigns.
We expect Belgacom to significantly increase revenue per line as the company completes the digitalization of its network, (currently 85% digital), enabling more value added network services to be offered, which in turn should stimulate network traffic. We believe that there is scope for overall telecom services growth in Belgium, and that the company will benefit from this growth. At present, there is relatively lower penetration rates in traditional telephony, ISDN lines and mobile telephones in Belgium, compared with other European countries and telecommunications turnover as a percentage of gross domestic product in Belgium is only 1.5 % compared to a European average of 2.2 %. These factors combined with expected adequate tariff rebalancing, which has been gradually taking place since 1993 under a supportive regulatory environment, will fuel strong operating cash-flow going forward.
Moody's has also taken into account Belgacom's current management strength and commitment to deliver on challenging business objectives, at the same time as gradually improving the company's debt protection ratios. In this respect, we favorably consider the strategic partnership with Ameritech, Tele Danmark and Singapore Telecom which constitute a strong technological and managerial support base through their 50% equity stake in Belgacom.
Belgacom has a special legal status under the law of March 21, 1991, which describes it as a Societe Anonyme de droit public (Autonomous Public Law Enterprise). As such, Belgacom is not subject to Belgian Bankruptcy Law, and therefore cannot be declared bankrupt nor lose management of its public assets; nor be subject to the appointment of a trustee to liquidate and distribute its assets. However, the company is partially privatized and, although it would take an act of Parliament for the government to reduce its equity stake to below 50%, Moody's considers it possible for Belgacom to lose its special legal status if the Parliament were to approve the government to reduce its equity stake to below 50% in the future.
On the negative side, the ratings also factor the risks associated with Belgacom's un-funded pension liability as well as the need to continue to improve its operating costs structure and become more efficient. For example, Belgacom has an inefficient average access line per employee figure of 238, and although we expect it to improve to about 260 lines per employee by year 2001, we think this will still be significantly below the optimal sector figure of about 350 at that time.
Internationally, although Belgacom has plans to develop its recently established market presence in France, Germany, the UK and North America, where it offers data communications services to corporate customers, we believe that future international investments, as well as continued domestic network capital expenditure, will be funded in a way that will enable the company to continue to improve its capital structure.
Belgacom SA, headquartered in Brussels, Belgium, is the dominant provider of telecommunication services in Belgium. It serves 5 million access lines and offers local, long- distance, mobile and international communications services. The company is 50% plus one share owned by the Government of Belgium, which, by law, can't reduce its equity stake. The rest of the shares are owned by a consortium which includes Ameritech, Tele Danmark and Singapore Telecom.
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