Fitch warns on Vodafone rating over cable deal

CREDIT rating agency Fitch warned over Vodafone’s debt yesterday, putting it on a negative outlook after Kabel Deutschland’s board approved a takeover of the German firm.

Fitch said that if the acquisition – which has a total value of €10.7bn (£9.1bn) once Kabel’s debt is taken into account – goes through, the agency is likely to downgrade Vodafone one notch from its current A- rating.

“Competitive intensity in key markets or a worsening of the Eurozone crisis could put pressure on cash flow generation, which in turn could put pressure on the rating,” Fitch said.

Vodafone chief executive Vittorio Colao’s plans to expand into broadband and pay-TV services in Europe could be hit if the firm finds it more expensive to finance deals. Fitch said that Vodafone selling some or all of its stake in Verizon Wireless, the US mobile network, would ease the pressure, although Colao has repeatedly insisted he does not need to sell the holding to finance acquisitions.

Speaking to City A.M. after the deal was announced, one large shareholder raised fears that Vodafone had overpaid for Kabel, and would have to do so again for other assets in Europe.

However, shares in the company rose yesterday, as analysts backed Vodafone following news of the takeover.