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Number crunchers turn positive on telecoms


Deutsche Telekom's slow progress in selling
assets has worried the ratings agencies

Should credit investors be starting to look favourably at European telecom bonds despite the volatility of the market?

Immediate indications suggest not. There are still credit concerns about France Telecom's contingent liabilities and at Deutsche Telekom deleveraging is making slow progress. Vodafone faces questions about whether goodwill from acquisitions is overstated on its balance sheet.

Technical factors are also worrying investors. The frantic hedging efforts of bank lenders committing themselves to France Telecom's e15 billion ($13 billion) syndicated refinancing facility last month blew out the company's spreads in the credit default swap market, spooking bondholders.

Some analysts take all this on board but are fundamentally optimistic. "It's a really frenzied environment at the moment", says Satyajit Chatterjee, a TMT fixed income credit research analyst at HSBC. "Credit default swaps have driven spreads wider as a result of negative news flow from France Telecom, Deutsche Telekom and ratings downgrades from telco equipment suppliers Alcatel and Ericsson."

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