Credit agency downgrades Eutelsat
December 23, 2024
Credit rating agency Standard & Poor’s (S&P) has lowered Eutelsat’s credit ratings. S&P says it expects Eutelsat’s loss-making LEO satellites division (OneWeb) and hefty capital expenditure (capex) needs will result in sustained negative cash flow in the next three to five years. S&P adds that it now considers Eutelsat’s risk profile to be ‘Weak’ (down from ‘Fair’).
“We think Eutelsat is facing an increasingly tougher competitive environment amid Starlink’s expansion into business to business (B2B) markets, the upcoming entry of Amazon Kuiper, and other LEO (low earth orbit) competitors in the next few years; and its delayed ramp-up of OneWeb’s global services,” said S&P.
“We therefore lowered our long-term ratings on Eutelsat and Eutelsat Communications to ‘B-‘ from ‘B’. We also lowered our issue rating on Eutelsat S.A.’s debt to ‘B’ from ‘B+’ and that on Eutelsat Communications’ debt to ‘B-‘ from ‘B’,” stated the agency.
However, S&P stressed that it views a stable outlook in the short term which reflects its expectation that the group’s liquidity will remain adequate over the next 12 months, despite significant cash outflows, and that it will ensure it has adequate funding before it fully commits to the $4 billion next-generation LEO constellation.
Standard & Poor’s major worries focus on competition. It noted: “Competitive pressures from LEO competitors will continue to rise, leading to heightened uncertainties for future revenue and margins. We anticipate a fast expansion of Starlink’s LEO services into B2B markets like inflight connectivity, maritime, and government services, particularly outside the EU. This is disrupting a significant part of the global satellite sector, weakening the competitive position of established service providers like Eutelsat and, in our view, significantly reducing earnings predictability. Overall, the global satellite industry is evolving rapidly and execution risks are meaningful. Thus, our revised revenue and EBITDA forecasts for the group in 2025 are 8 per cent and 13 per cent lower respectively, compared with our forecasts earlier this year, reflecting the impact of the delayed [OneWeb] ground network rollout.”
“We also think competitive pressures could increase further in the coming years, due to the expected entry of Amazon Kuiper in 2025 and other upcoming deep-pocketed competitors, which could further weigh on Eutelsat’s revenue growth potential in the LEO segment and on its profitability. At the same time, the company’s very profitable video segment (about 51 per cent of the group’s revenue) is in a secular decline, despite its relatively good position in Europe, the Middle East, and Africa, with revenue down 5 per cent-10 per cent annually, due to ongoing substitution by over-the-top media services. Reflecting the combination of those various challenges, we therefore revised our assessment of Eutelsat’s business risk profile to weak from fair,” explained S&P.
“Eutelsat’s cash flow will remain significantly negative in the coming years,” added the S&P report. “We expect the company’s loss-making LEO segment and large capex to expand its LEO constellation will weigh on cash flow in the next three-to-five years. We think the company has a certain amount of flexibility in terms of capex and, potentially, significant funding from IRIS², the EU’s planned multi-orbital constellation combining medium earth orbit and LEO satellites. However, we believe Eutelsat will still need to partly fund the constellation expansion (back-end loaded) with internal cash flow and debt, which will likely lead to a sustained negative cash flow.”
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