Moody's upgrades Embratel

Moody's Investors Service said it upgraded the global local currency issuer rating and foreign currency debt rating of Empresa Brasileira de Telecomunicacões SA ("Embratel") to Ba3 from B1 and its Brazilian national scale rating to A2.br from Baa1.br.

This concludes the rating review begun on Nov. 11. The outlook is stable.

The upgrade primarily reflects Embratel's improved liquidity and sustainable reduced financial leverage as a result of the R$1.8 billion capital increase in 2005 that was largely used to reduce debt, the agency said. Debt to EBITDA improved to 1.1x at the end of 2005 from 3.4x in 2002.

Moody's said the ratings reflect Embratel's strong brand equity, especially in the corporate segment, and its position as Brazil's largest data transmission and long distance carrier. The ratings are further supported by its 72.3% ownership by Telefonos de Mexico SA de CV ("Telmex"), rated A2.

The ratings also incorporate, however, Embratel's continued challenges in its long-distance business segment, accounting for over 62% of its revenues, which Moody's predicted will continue to face fierce competition from other incumbent wire line carriers, wireless operators and new technologies such as voice-over-internet protocol.

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