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Rating Action:

Moody's assigns Baa3 rating to Telia's proposed hybrid security

22 Mar 2022

Madrid, March 22, 2022 -- Moody's Investors Service ("Moody's) has today assigned a Baa3 long-term rating to Telia Company AB's (Telia) proposed issuance of EUR 500 million-denominated junior subordinated fixed rate 6.25 year reset capital securities (hybrid debt) due 2083. Telia's other ratings and stable outlook remain unchanged.

"The Baa3 ratings we have assigned to the hybrid debt is two notches below Telia's senior unsecured rating of Baa1, primarily because the instrument is deeply subordinated to other debt in the company's capital structure," says Carlos Winzer, a Moody's Senior Vice President and lead analyst for Telia.

Telia plans to allocate an amount equivalent to the proceeds to invest in eligible green projects (as defined under Telia's Green Bond Framework).

A full list of affected ratings is provided towards the end of the press release.

RATINGS RATIONALE

The Baa3 rating assigned to the hybrid debt is two notches below the group's senior unsecured EMTN rating of Baa1. The two-notch rating differential reflects the deeply subordinated nature of the hybrid debt. The instrument: (1) is long dated, with a tenure of at least 60 years; (2) is senior only to common equity; (3) provides Telia with the option to defer coupons on a cumulative basis; (4) steps up the coupon by 25 basis points (bps) from year 2033 and, and an additional 75bps in year 2048; (5) steps up the coupon by 500 bps upon the occurrence of a change of control event; and (6) Telia must come current on any deferred interest if there are any payments on parity or junior instruments, subject to customary carve-outs. The issuer does not have any preferred shares outstanding that would rank junior to the hybrid debt.

In Moody's view, the notes have equity-like features that allow them to receive basket "C" treatment, i.e., 50% equity and 50% debt for financial leverage purposes (please refer to Moody's Hybrid Equity Credit methodology published in September 2018).

Telia Company AB's (Telia) Baa1 rating reflects the company's scale and leading position as an integrated entity in its highly competitive domestic market; the quality of its network in Sweden following a period of significant network investments; the company's strong liquidity; and its 39.5% ownership by the Government of Sweden (Aaa stable), which translates into a one-notch uplift to the final rating.

However, the rating also reflects the decline in Telia's scale, geographical diversification and growth potential; and sustained pressures in the fixed-line and enterprise segments in Sweden.

Telia is a government-related issuer (GRI) and the final rating of Baa1 benefits from a one notch uplift derived from the Swedish government's ownership.

RATIONALE FOR STABLE OUTLOOK

The stable rating outlook reflects Moody's expectation that Telia's operating performance will remain under pressure over the next 12-18 months and leverage will remain high for the rating category, but also factors in management's commitment to strengthen its balance sheet and accelerate leverage reduction, such that its adjusted gross debt/EBITDA improves to below 3.0x on a sustained basis.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

As the hybrid debt rating is positioned relative to another rating of Telia, either (1) a change in Telia's senior unsecured Baa1 rating; or (2) a re-evaluation of its relative notching could affect the hybrid debt rating.

A rating downgrade could result if the company's credit metrics weaken, such that its retained cash flow/adjusted net debt remains below 20% and its adjusted total debt/EBITDA ratio remains above 3.0x for a prolonged period. In addition, if the government were to reduce its stake to less than 20%, Moody's would no longer consider the company a GRI, which would likely result in a one-notch downgrade.

Moody's would consider upgrading Telia's rating to A3 if the company strengthens its credit metrics, such that its retained cash flow/adjusted net debt ratio remains above 25% and its adjusted total debt/EBITDA ratio remains below 2.5x, both on a sustained basis.

LIST OF AFFECTED RATINGS

Assignments:

..Issuer: Telia Company AB

....Junior Subordinated Regular Bond/Debenture, Assigned Baa3

PRINCIPAL METHODOLOGIES

The methodologies used in this rating were Telecommunications Service Providers published in January 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1055812, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

COMPANY PROFILE

Telia Company AB, domiciled in Stockholm, Sweden, is a leading provider of wireline and wireless services in the Nordic and Baltic regions. In the financial year ended December 2021, it generated approximately SEK88 billion in revenues and approximately SEK30 billion in adjusted EBITDA. As of December 2021, the Swedish government held a 39.5% equity stake in Telia.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Carlos Winzer
Senior Vice President
Corporate Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid, 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid, 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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