S&P puts City Telecom on negative watch

Standard & Poor's placed City Telecom Ltd.'s BB- long-term corporate credit rating and the BB- rating on the company's $125 million senior unsecured notes due 2015 on CreditWatch with negative implications.

The rating actions reflect the company's weaker-than-expected 2005 financial results, the agency said.

For the fiscal year ended Aug. 31, the Hong Kong company reported EBITDA of HK$65.5 million, down from HK$245.0 million a year earlier. A larger-than-expected 15.2% decline in international telecom services revenue and a substantial increase in expenses from a ramp-up of pay-TV operations and interest expenses led to a decrease in the company's fiscal 2005 EBITDA interest coverage ratio to a weak 1.2x while its ratio of net debt to EBITDA increased to 5.0x.

However, S&P said the company still has adequate liquidity, with HK$632.4 million in unencumbered cash compared with HK$369.1 million in current liabilities and HK$948.5 million in total debt as of Aug. 31.

Also, growth in fixed telecom network subscriptions for broadband, voice and pay-TV services was in line with expectations, reaching 631,000 subscribers as of fiscal year-end 2005, the agency said.

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