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Announcement:

Moody's comments on PCCW's and HKT's full year results

10 Mar 2010

Hong Kong, March 10, 2010 -- Moody's Investors Service says that PCCW Limited's (parent of Hong Kong Telecommunications (HKT) Limited "HKT") full year 2009 results were broadly in line with the agencies expectations, with no immediate impact on HKT's Baa2 rating. The outlook remains negative.

Declines in consolidated revenue at the PCCW level were primarily driven by a material decrease in revenue from Pacific Century Premium Developments Limited ("PCPD"). PCCW's core business saw relatively flat results year-on-year, with revenues declining by 5% while proactive cost management allowed the company to improve margins and maintain EBITDA.

PCCW's fixed line telecommunications services revenue, which fell 7% year-on-year, was negatively impacted by changes in regulatory regime on fixed mobile interconnection charges. Moody's also notes that the turbulent macroeconomic environment of 2009 affected PCCW's enterprise customer base, which also contributed to the decline.

Moody's believes the economic climate remains competitive and continues to carry a degree of uncertainty, as both enterprise and individual consumers remain under pressure.

PCCW's mobile business posted a healthy increase in EBITDA, in the midst of competitive pressures, as growth in subscribers, and strategic shift away from low-end handset promotions enabled the company to improve margins. And Moody's recognizes that the second half of 2009 showed EBITDA contribution from all of the company's business lines for the first time, with the TV & Content segment turning profitable on the back of improvements in ARPU and subscriber growth.

The company's leverage, as measured by net adjusted debt / EBITDA of 3.6x, declined from mid-year levels due primarily to a sizable increase in cash. On a gross basis, leverage increased from mid-year and 2008 levels, as consolidated EBITDA fell.

"PCCW's leverage remains high relative to its Baa2 rating, and continues to exhibit downward pressure on the rating, which is reflected in the company's negative outlook" says Laura Acres, a Moody's VP -- Senior Credit Officer.

PCCW's overall credit profile remains consistent with an investment grade rating, supported by its excellent liquidity, with no material debt maturing over the near to medium term.

Upward pressure on the rating is unlikely - hence, the negative outlook. However, the outlook could revert to stable should HKT perform according to its financial projections. Specifically, Moody's would look for a reduction in leverage, as measured by adjusted net debt/EBITDA below 3.0-3.5x on a consistent basis, as the company maintains its overall operating performance (including market share, positioning, and EBITDA margins). Moody's would also look for interest coverage, as measured by FFO+interest/interest, to rise above 4.5-5.0x.

Downward pressure could emerge should HKT Group or PCCW adopt a more aggressive dividend policy, raise leverage levels to fund investment, or fail to meet the revenue and EBITDA growth targets laid out in their financial projection model.

Furthermore, any deterioration in revenues and operating cash flows at the HKT level may also prompt downward rating pressure. Credit metrics evidencing such pressure include consolidated adjusted net debt/EBITDA remaining consistently above 4.0x or FFO+interest/interest remaining below 4.0x.

The principal methodology used in this rating this issuer was the Global Telecommunications Industry methodology, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

The last rating action for HKT occurred on 28 November, 2008, when Moody's assigned new Baa2 ratings with a negative outlook following the company's corporate reorganization.

Hong Kong Telecommunications (HKT) Limited ("HKT"), the ex-incumbent integrated telecommunications provider in Hong Kong, is wholly owned by HKT Group Holdings Limited ("HKT Group"), which is wholly owned by PCCW Limited ("PCCW"). HKT Group consolidates all PCCW's telecommunications related assets, and effectively cements the businesses that fit into its quadruple play strategy of fixed line, broadband, pay-TV, and mobile services. HKT is the principal subsidiary and provides local telephony, international telecommunications, and local data and broadband services, as well as mobile services.

Hong Kong
Laura Acres
VP - Senior Credit Officer
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077

Hong Kong
Gary Lau
Managing Director
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077

Moody's comments on PCCW's and HKT's full year results
No Related Data.
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