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Belgacom downgraded over pensions

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BELGIUM – Telecoms company Belgacom has been downgraded by ratings agency Standard & Poor’s because of the planned transfer of its pension fund to the Belgian state.

The state is set to take over the assets of Belgacom’s 3.6 billion-euro pension fund in preparation for an initial public offering of the company next year. The move has seen 10 investment managers lose their mandates.

S&P said it downgraded its long-term credit rating on Belgacom to AA- from AA - with the outlook negative. S&P has been reviewing Belgacom since the October 24 announcement about the pension fund transfer.

"The downgrade reflects the fact that, as a result of the forthcoming IPO and pension fund transfer, Belgacom will leverage its balance sheet to levels beyond previous expectations," said S&P credit analyst Leandro de Torres Zabala.

"In addition, Standard & Poor's believes that the company's listing could potentially result in a more aggressive financial policy and business strategy."

S&P said the IPO, which will also include a share buyback, will result in the company making a total cash payment of 2.8 billion euros within the next few months.

Of that 1.5 billion euros will be a payment to the state for the difference between the values of the assets assigned to the pension fund and outstanding pension obligations. This sum is set to be paid on or before December 31.

“The current ratings assume that Belgacom will maintain a very strong business position in its domestic operations, solid operating margins, strong and sustainable free operating cash flow, and debt protection measures compatible with the rating category,” S&P added.

The pension fund takeover has faced criticism. The International Monetary Fund called it an “ad hoc” measure which masks the country’s true fiscal position.

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