Telefonica del Peru receives credit ratings downgrade

Given its recent troubles, the Moody’s Ratings downgrade of operator Telefonica del Peru’s Corporate Family Rating (CFR) and senior unsecured rating to Caa1 from B2 is not great news.

The credit rating agency says the downgrade reflects the increasing refinancing risk and risk of debt restructuring over the next few months following the deterioration in Telefonica del Peru ́s liquidity position. This deterioration has resulted from the combination of the company ́s persistently weak operating performance and a sizable tax liability currently in the process of being settled with the Peruvian tax authorities.

The rating also takes into account the uncertainty surrounding Telefonica del Peru ́s ability to refinance the first US$180 million instalment of its outstanding US$460 million 2027 Notes due in April 2025, given limited liquidity, weak operating performance and uncertain financial support from its ultimate shareholder, Telefonica.

An estimate of negative cash flow at least until 2026 and a crucial need to secure access to financial markets to refinance debt are also part of Moody’s assessment.

Telefonica del Peru is the largest telecommunications operator in Peru, an integrated telecommunications service provider offering mobile, fixed, pay-TV and business-to-business services.

However, despite significant efforts to improve profitability over the last three years, there’s been a decrease on the fixed line services side and operating costs are still increasing. In addition, efforts to convert its copper and hybrid fiber-coaxial (HFC) network to fibre have not brought an improvement in revenues.

Moody’s says the ratings have been placed under review for further downgrade. 

This news adds to Telefonica del Peru’s woes. The company has been trying in recent years to sell assets to pay off its debts and fund capital expenditure-intensive 5G deployments. Earlier this month we reported that Telefonica’s sale of shares in its fibre optic network in Peru to investment fund KKR and Chilean telco Entel had collapsed.