Cable & Wireless Plc has signed up Moody’s Investors Service Inc to rate its debt, and the New York agency has assigned A2 ratings to the senior unsecured long-term debt of the company and its guaranteed subsidiary Cable & Wireless International Finance BV. Cable & Wireless’s short-term rating is Prime-1. The A-2 rating reflects the consolidated company’s strong balance sheet, high levels of liquidity and conservative financial policies, Moody’s said, adding that the ratings also incorporate the risks related to Cable & Wireless’s 57.5%-owned subsidiary and major earnings generator, Hong Kong Telecommunications Ltd; uncertainties over its plans to expand into China and the highly competitive European market; and increasing competition faced by Mercury Communications Ltd. About $1,000m of long-term debt securities are affected. Hong Kong Telecom contributes 64% of the company’s operating profit and 60% of its cash flow, so Moody’s had to give considerable weight to Hong Kong Telecom’s sovereign risk level, as reflected in the A3 foreign currency sovereign ceiling for Hong Kong domiciled entities, though this factor could diminish over time because Cable & Wireless’s fundamental strategy focuses on reducing its cash flow dependence on Hong Kong Telecom by strategically investing in other markets, the ratings agency said. Cable & Wireless currently has a consolidated cash position exceeding #1,000m and Moody’s expects it to finance its investments conservatively, thus maintaining its strong consolidated balance sheet structure, but given Hong Kong Telecom’s likely further growth and expansion into China, most of the parent company’s cash flow will continue to come from the Far East, continuing to expose the company to significant sovereign risk, it said.
