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Announcement:

Moody's: TeliaSonera's ratings unchanged, albeit weakly positioned, following launch of new share buyback (Sweden)

03 Feb 2011

Madrid, February 03, 2011 -- Moody's Investors Service has today said that TeliaSonera AB's ratings and stable outlook remain unchanged following the group's announcement that it has launched a new SEK10 billion share buyback programme, to be executed during 2011, and increased its dividend by 22% compared to 2009.

However, TeliaSonera's ratings are now more weakly positioned within the A3 rating category. Furthermore, Moody's considers there to be limited tolerance for deviation from its guidance for an A3 rating, which may result from (i) any deterioration in the group's operating performance; (ii) large debt-financed acquisitions; and/or (iii) further shareholder remuneration initiatives.

Moody's expects that, following TeliaSonera's share buyback, the group will report an adjusted debt/EBITDA ratio of around 2.4x (in the higher end of the 2.0-2-5x range for the A3 rating) and a retained cash flow (RCF)/adjusted net debt ratio of slightly below 25% (compared with the 25%-30% range for the A3 rating). Both ratios are relatively weak for the current rating category.

Moody's notes, however, that the negative impact on TeliaSonera of its relatively weak credit metrics for the rating category is mitigated by the extraordinary nature of its share buyback and the group's strong liquidity profile, with low refinancing needs in 2011.

TeliaSonera also announced today its FY 2010 results, which were in line with Moody's expectations, with underlying revenue growth of 3.5%, an improvement in reported EBITDA margins, and capex amounting to 14% of sales. The group expects these favourable operating trends to continue in 2011.

TeliaSonera's A3 rating continues to be supported by (i) the group's scale; and (ii) its position as a dominant integrated player in its highly competitive domestic market and a geographically diversified leading mobile operator in Eurasia. The rating also factors in: (i) TeliaSonera's continued strong cash flow generation; (ii) its capital structure objective; (iii) the group's shareholder remuneration policy, with its intention to return excess capital to shareholders; and (iv) its appetite for acquisitions in Eurasia. The A3 rating benefits from a one-notch uplift as a result of the group being government-owned.

Any positive pressure on TeliaSonera's A3 rating would require a rebalancing of the current distribution of free cash flow and financial flexibility from shareholders to lenders, thereby strengthening the group's credit metrics on a sustainable basis. Moody's considers this unlikely given the group's stated capital structure and shareholder remuneration policy, under which it will target a solid investment-grade credit rating (A3 to Baa1). Upward pressure could result from improved performance such that TeliaSonera's RCF/adjusted net debt ratio solidly exceeds the low 30s in percentage terms, and the group's adjusted debt/EBITDA ratio falls solidly below 2x.

Negative pressure on the rating could develop if further erosion of the group's financial flexibility were to be reflected by weaker debt protection ratios than currently expected (including an RCF/adjusted net debt ratio sustainably declining below 25%, and an adjusted debt/EBITDA ratio sustainably rising above 2.5x), whether as a result of operational underperformance, a large debt-financed acquisition, or new extraordinary shareholder distributions. In addition, if the government were to reduce its stake below 20%, Moody's would most likely no longer apply the government-related issuer methodology to TeliaSonera. This would probably result in a one-notch downgrade. Downward rating pressure could also develop if Moody's were to detect a reduction in state support for TeliaSonera, or if the government were to distance itself from the group even before the share disposal.

Moody's previous rating action on TeliaSonera was published on 12 February 2009, when the rating agency affirmed the group's A3 senior unsecured long-term rating and P-2 short-term ratings.

The principal methodologies used in rating TeliaSonera were Moody's "Global Telecommunications Industry Rating Methodology", published in December 2010, and "Government-Related Issuers: Methodology Update", published in July 2010. Both reports are available on www.moodys.com. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Headquartered in Stockholm, Sweden, TeliaSonera is a leading provider of telecommunication services in the Nordic and Baltic countries, the emerging markets of Eurasia, including Russia and Turkey, and in Spain. TeliaSonera reported net revenue of SEK107 billion in 2010.

Madrid
Ivan Palacios
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Espana, S.A.
Barbara de Braganza, 2
Madrid 28004
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's: TeliaSonera's ratings unchanged, albeit weakly positioned, following launch of new share buyback (Sweden)
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