Telefonica de Espana SA has taken a hit from Moody’s Investors Service Inc, and immediately started to argue. Moody’s Investors Service downgraded the short-term debt ratings for commercial paper of Telefonica and its fully-owned and guaranteed subsidiary, Telefonica North America Inc, to Prime-2 from Prime-1, affecting about $375m of short-term debt and the move concludes the review begun on March 1 following Telefonica’s announcement of its $2,000m investment in Peru. Moody’s reckons that Telefonica’s business risk has significantly increased as a result of the gradual liberalisation of the telecommunications industry in Spain, and its increasing exposure to international investments in Latin America. Moody’s expects this risk will continue to increase as Telefonica gradually shifts its cash flow mix from the traditional domestic telephone business to more volatile international telephone operations and that its growing operating risk in Latin America, through its Telefonica Internacional unit, will not be fully offset by the long-term financing plan currently being negotiated. Telefonica took issue with the decision, saying that it did not reflect the company’s true situation. Telefonica’s true situation, and its future prospects, do not in its opinion justify any downgrade, adding that its investments gave it a leading position in the Latin American market.This allows us to improve the group’s economic and financial results and strengthens our capacity to make strategic alliances, the Spaniard asserted.
