Fitch drops PCCW-HKT view to negative, rates bonds BBB+

Fitch Ratings said it revised the outlook on PCCW-HKT Telephone Ltd. (HKT) to negative from stable and affirmed HKT's senior unsecured rating at BBB+.

At the same time, Fitch said it assigned a rating of BBB+ to the proposed $500 million senior unsecured bond due 2015 to be issued by PCCW-HKT Capital No.3 Ltd. and guaranteed by HKTC.

Meanwhile, the ratings on HKT's existing debt issues and committed facilities have also all been affirmed at BBB+, Fitch said.

"The revision in the rating outlook follows the weaker than anticipated operating performance by HKT over the past two years on account of the harsh regulatory regime and sustained acute competition in the Hong Kong telecom market," said Jonathan Cornish, Fitch's regional head of TMT - Asia-Pacific.

He said this has led to higher gross leverage and lower interest coverage ratios than the agency expected.

However, HKT's rating continues to be supported by its leading position in the Hong Kong telecom market, its superior networks and technology as well as its positive free cash flow generation, although this has been diminishing in recent years, the agency added.

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