Fitch affirms Telefonica del Peru

Fitch Ratings said it affirmed Telefonica del Peru SAA's foreign-currency issuer default rating at BBB-, local-currency issuer default rating at BBB+, 754 million nuevo sol senior notes due 2016 at BBB- and national rating at AAA(pe).

The outlook is stable.

The affirmation follows Telefonica del Peru's recent agreement with the government to reduce certain charges and/or rates and the commitment of the Telefonica Group, including Telefonica del Peru, to invest about $1 billion over the next four years, of which $500 million will be invested by Telefonica del Peru. Fitch predicted that the agreement reached by Telefonica del Peru with the Peruvian government will have a slightly negative effect on the company's credit quality over the short term, but said it should have a neutral effect over the medium term and that credit protection measures should remain consistent in the rating category.

The agency said the ratings are supported by the company's solid business position as the largest Peruvian telecommunications company, the diversified revenue stream from its various business segments, healthy cash flow generation, relatively low capital-expenditure needs and a strong financial profile. For the first nine months of 2006, the total debt-to-EBITDA ratio was 1.3x.

The ratings also incorporate regulatory risks, continued pressure on local service traffic and heightened competition, Fitch noted.

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