Bezeq Drops as S&P Cites Dividends in Rating Cut: Tel Aviv Mover

Bezeq Israeli Telecommunication Corp. fell to the lowest level in two weeks on bets a ratings cut by Standard & Poor’s Maalot may prompt the country’s largest fixed-line provider to curb dividend payments.

Shares of the company, which also offers mobile phone services, dropped 1.1 percent to 4.609 shekels, the lowest close since Feb. 12 in Tel Aviv. The stock was the second-worst performer on the TA-25 index in 2012 after Cellcom Israel Ltd., dropping 39 percent as competition in the telecommunications industry intensified.

S&P Maalot lowered debt of Bezeq and its Pelephone Communications Ltd. cellular unit by one level to ilAA, the third-highest grade, partly because an “aggressive dividend policy” constrained the company’s financial flexibility, according to a Feb. 21 statement released after markets closed. Bezeq’s 12-month dividend yield is 25 percent, compared with an average of 2.9 percent for stocks on the TA-25 Index, according to data compiled by Bloomberg.

“The market is seeing this as a signal from S&P that it has to reduce its aggressive dividend payments,” Ilanit Sherf, a Tel Aviv-based analyst at Psagot Investment House Ltd., said today by phone. “We have often said that in light of the rise in competition and its leverage, dividends at Bezeq will have to be cut.”

Greater Competition

Hot Telecommunication System Ltd. and Golan Telecom entered the wireless market last May, leading to greater price competition for incumbents Bezeq, Cellcom and Partner Communications Co. Bezeq is also set to face fixed-line competition when Israel Electric Corp. sets up a network and as the government introduces a wholesale fixed-line market.

“Because of exposure to competition and higher regulation, the business profile of the company has weakened,” S&P Maalot wrote in the note. “We estimate that a weakness in the company’s operating performance will have to lead to a drop in dividend payments.” Bezeq has 1.1 billion shekels of debt payments due this year, S&P said.

Shares of Cellcom dropped 1.6 percent today and and Partner fell 1 percent. B Communications Ltd., which holds a 31 percent stake in Bezeq according to data compiled by Bloomberg, lost 2.8 percent. Internet Gold-Golden Lines Ltd., B Communications’ parent company, retreated 2.1 percent.

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