Bezeq's credit rating downgraded

In practical terms, the new rating raises Bezeq's borrowing costs, making the company more risky.

October 17, 2005 06:42
2 minute read.
bezeq logo 88

bezeq logo 88. (photo credit: )


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US ratings agencies Moody's Investor Service and Standards & Poor's downgraded their credit ratings on Bezeq following completion of the sale of Israel's largest telecommunications company to the Apax-Saban-Arkin consortium last week. Both agencies cited increased financial risk resulting from the sale as reasons for the lower ratings, saying they expected financial policy changes designed to increase shareholder remuneration to be implemented by the new owners. Moody's lowered its rating to Baa1, while S&P dropped Bezeq from A- to BBB+, the third lowest in a 10 grade listing. Both agencies said the company remains on watch for possible additional downgrades, where it has been since May 10 when the government first chose Apax-Saban-Arkin as the preferred bidder for its 30% controlling stake in the company. "We see a fundamental change in Bezeq's capital structure including an increased indirect debt burden," S&P said in a statement. "There remains significant uncertainty regarding the new owner's strategy and financial policy for Bezeq." In practical terms, the new rating raises Bezeq's borrowing costs, making the company more risky. Bezeq shares dropped 2.2 percent to NIS 6.26 Sunday, the first day of trade in Tel Aviv following the downgrades. Telecommunications analyst Richard Gussow of Excellence Nessuah said the downgrade was expected due to the known intentions of Apax-Saban-Arkin to issue a NIS 2 billion dividend now that they have taken ownership of Bezeq. "With a private equity firm [Apax Partners] in the consortium, the group is looking to maximize its return to shareholders," said Gussow, who maintains a "buy" recommendation on Bezeq shares. "The dividend is amongst the first things the new owners are expected to do." Allan Barkat, the head of Apax Partners Israel, said in an interview last week that the fund sees its investment in Bezeq as a long-term one, and that it has intentions to build and grow the company. Apax-Saban-Arkin paid NIS 4.2 billion for the government's stake in Bezeq and has an option to buy a further 10.7% of the share capital. In its first board meeting on Tuesday, former Pelephone CEO Jacob Gelbard was named Bezeq's new CEO and Mori Arkin was elected Chairman. While Gussow maintains that the major move for investors will be the dividend payout, the new owners also are expected to implement major efficiency measures at the company, cutting in some 2,000 jobs. Due to government regulations, Bezeq is still limited in bringing new services to consumers, Gussow added.

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