Vodafone’s decision to reinvest a £2.1 billion ($3.18 billion) dividend from Verizon Wireless in the business is enough to convince credit ratings agency Moody’s Investors Service to maintain its outlook on the cellco.
The firm has affirmed its A3/Prime-2 and (P)Baa2 preferred stock shelf ratings on Vodafone and retained a stable outlook, due to the cellcos decision to pump the Verizon funds into spectrum and general corporate expenditure. The stable rating comes despite Vodafone’s net profit falling £6.3 billion in the year to end-March, with Moody’s reasoning the income from Verizon offsets £7.7 billion worth of impairment charges Vodafone booked on its Spanish and Italian businesses during the year.
“The rating affirmation reflects our view that the weak positioning of Vodafone's credit metrics within the A3 category is broadly offset by the increasing value and cash flow contribution from its 45% equity stake in VZW, and by management's long-standing commitment to a low single-A rating," explains Iván Palacios, a Moody's vice president and senior credit officer and lead analyst for Vodafone.
“In our view, Vodafone has the financial flexibility to improve its credit metrics, as demonstrated by management's decision to retain the £2.1 billion dividend to be paid by VZW rather than returning it to shareholders,” Palacios adds.