Credit rating agency Moody’s said Telefonica is unlikely to meet debt reduction targets by December 2017.
The agency downgraded the company’s rating following a decision to revise its financial strategy to put more emphasis on deleveraging through organic means rather than asset disposals.
Telefonica announced a fortnight ago it will cut its dividend to shareholders, which should increase its free cashflow and boosts its ability to pay down debt.
However, under the revised strategy, the company will only dispose of non-strategic assets on an opportunistic basis, said the agency.
Moody’s reckons this change means Telefonica is now unlikely to meet previously stated debt reduction targets.
Its debt stands at around €50 billion.
It downgraded the long-term senior unsecured ratings for Telefonica and its guaranteed subsidiaries by one notch from Ba1 to Ba2.
The company has been forced to drop plans for an IPO of Telxius, its global infrastructure business, and a listing of UK operator O2 is no longer on the cards, at least this year. Telefonica said it will seek an IPO for the UK unit in 2017, if market conditions are right.
Moody’s said back in May this year that Telefonica’s rating could be downgraded without evidence that the company will cut debt this year.
On a brighter note, the agency noted improvements in Telefonica’s underlying performance, most recently in Q3. Performances are on the up in Spain, the UK, and Germany, while the Brazilian unit remains resilient to the recession, it said.