Fitch: Telco CEO Resignations Show When Key Manager Risk Matters

viernes 17 de octubre de 2014 07:27 GYT
 

(The following statement was released by the rating agency) LONDON, October 17 (Fitch) Two recent telecom CEO resignations highlight some circumstances in which the leadership of key individuals can become a significant factor in corporate credit ratings, Fitch Ratings says. "Key manager" risk is most significant for asset managers, but can occasionally become a rating factor for corporates. This is most likely for companies towards the bottom of the non-investment-grade spectrum, where operational challenges leave little margin for error. Higher up the rating scale it is equity rather than debt investors that are most exposed to management risks. Key manager risk is also more likely to be a factor in highly competitive sectors and those undergoing rapid change, because of the potential for big winners and losers to emerge in a relatively short time. In these situations succession and continuity also become critical, although the loss of key industrial managers is rarely likely to lead to an immediate rating action. The resignation of eircom CEO Herb Hribar in September is a prime example. We viewed Hribar as instrumental in the operational turnaround of the company since he joined the firm in late 2012. Under Hribar, eircom invested heavily in fibre, quickly surpassing the reach of cable operator UPC, substantially cut costs, launched a TV offering, acquired 4G spectrum, and rolled out LTE mobile technology. These milestones positioned eircom as the first operator in the market to offer a convergent quad-play service and have been central to the stabilisation of operational and financial metrics. The clarity with which these plans were laid out and the speed they were implemented were as much a driver in stabilising eircom's 'B-' rating in February as was the progress made on revenue and cash flow. The negative impact of Hribar's departure is mitigated by the progress the company has made in implementing his reforms. Continuity is also provided by acting CEO Richard Moat, whom we consider another influential part of the team responsible for eircom's progress. Another example came last week with the resignation of Oi CEO Zeinal Bava. As Portugal Telecom CEO Bava was instrumental in establishing the operator as one of the most progressive incumbent European businesses. An early investment in fibre and progressive approach to a high-quality pay-TV offering enabled the company to effectively compete with cable - which is normally better placed to win fixed-line customers from incumbent networks. This approach enabled PT to stabilise fixed-access losses and increase residential fixed-line revenues, a unique achievement, even among incumbents in far stronger economies. Bava was also instrumental in engineering the merger with Oi. We believe the industrial logic for the merger remains strong despite market speculation about the future of the Portuguese business within the enlarged group. Oi's share price and PT's CDS spreads weakened materially after Bava's resignation - suggesting that markets pay attention to key manager risk. The loss of a key manager can also point to a change or divergence of views over financial policies - the implications of this may take longer to manifest but should nonetheless be watched. Contact: Stuart Reid Senior Director Corporates +44 20 3530 1085 Fitch Ratings Limited 30 North Colonnade London E14 5GN Alvin Lim Director Corporates +1 312 368 3114 Simon Kennedy Director Fitch Wire +44 20 3530 1387 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.