S&P has downgraded MTEL's credit outlook from stable to negative following a similar downgrade of Deutsche Telekom's credit outlook. S&P said that since DT owns 59.2% of MTEL, there is a significant rating link between the two companies. Hence the downgrade is purely driven by DT's standing. S&P has at the same time affirmed MTEL's long-term A credit rating.
Our view:
Although the downgrade is negative for MTEL, the fact that the move was largely driven by DT's credit investment case does not reflect MTEL's own financial strength and cashflow profile. Note that MTEL has a strict net gearing policy of remaining within the 30%-40% level to maintain their own credit rating. Moreover, S&P has left MTEL's A corporate rating, indicating that MTEL continues to satisfy S&P's criteria for high investment grade rating.