Telekom Slovenije Rating Cut to Junk by Moody’s on Weak Banks

Moody’s Investors Service cut the credit rating of Telekom Slovenije (TLSG) d.d. to junk because of state-owned phone company’s weaker liquidity due to deteriorating credit quality of Slovenia’s largest banks.

Telekom senior unsecured rating was cut on level to Ba1 from Baa3 with a negative outlook, the ratings company said in a report today. Most of the Ljubljana-based company cash and deposits of 100 million euros ($130 million) are placed with domestic banks and it relies on them for another 70 million euros in back-up liquidity, Ivan Palacios, Moody’s senior credit officer in Madrid said, according to the report.

“This increases the company’s vulnerability to stress in the Slovenian banking sector, and we view its liquidity profile as no longer being consistent with an investment-grade rating,” Palacios said. Telekom Slovenije has no capital market debt redemptions until December 2016, when its 300 million-euro bond matures, Palacios said.

Slovenian state-owned banks like Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor (KBMR) d.d. are struggling with a a surging bad loans because of rising bankruptcies in the euro region nation that is fighting its second recession since 2009. Banks are also at the center of investors’ concern Slovenia may be forced to seek an international bailout.

In Moody’s view, the risks for depositors in some large Slovenian banks has increased, as highlighted in the recent downgrades of Abanka Vipa (ABKN)’s long-term local and foreign-currency deposit ratings to Caa3 from Caa1 on February 22, Nova Ljubljanska’s long-term rating to Caa2 from B2 on March 12 and Nova Kreditna’s long-term deposit rating to Caa2 from B3 on 25 March 2013 with all ratings having a negative outlook.

Capital Aid

“These downgrades primarily reflect the high likelihood that these banks will require further external capital assistance in order for their capital ratios to remain above minimum regulatory guidelines,” Palacios said.

Telekom Slovenije dropped 1 euro, or 1.25 percent, to close at 79 euros at the Ljubljana stock exchange today, giving the company a market value of 516 million euros, data compiled by Bloomberg shows.

To contact the reporter on this story: Boris Cerni in Ljubljana at bcerni@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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