S&P cuts Portugal Telecom

Standard & Poor's said that it lowered the long- and short-term corporate credit ratings to BBB-/A-3 from BBB/A-2 on Portugal Telecom SGPS SA. The ratings were removed from CreditWatch with negative implications, where they had been placed on March 30.

The outlook is negative.

The rating action primarily reflects the belief that economic conditions in the Portugal (BBB-/negative/A-3) will continue to negatively affect Portugal Telecom's performances and that its 2011 debt metrics will turn out to be weak relative to the previous BBB long-term rating and remain so in the following two years, the agency said.

The ratings reflect the company's satisfactory business risk profile, based on established and well-sustained positions in the Portuguese fixed-line and mobile telecommunications markets and significant dividends to come from its 22% interest in the largest Brazilian integrated player Oi as well as from other international operations, the agency added.

The ratings consider strong competitive and regulatory pressures, currency risks on upstreamed dividends, a depressed domestic economy and uncertain potential impacts of the Portuguese government's fiscal adjustments on Portugal Telecom's revenues and costs, S&P said.

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