Moody's downgrades Qtel's ratings to A2/stable; concludes review

USD 1.5 billion of rated debt affected

DIFC - Dubai, August 18, 2010 -- Moody's Investors Service today downgraded the long term ratings for Qatar Telecom Q.S.C. ("Qtel"), Qtel International Finance Limited and the bonds issued under Qtel's GMTN programme by one notch to A2 from A1. The outlook is stable. This concludes the ratings review that Moody's initiated on March 10, 2010.

RATINGS RATIONALE

Moody's has changed its view on government support assumptions in line with other government-related issuers (GRIs), which has resulted in the downgrade. Although support from the Qatari government continues to be viewed as high, it is naturally being viewed as slightly lower than otherwise would be the case were there to be an explicit guarantee of the Qatari government or a special legal status, from which Qtel does not benefit. In addition, Moody's expects that the economic importance will over time moderate with the liberalisation of Qatar's telecommunication market and the arrival of a second competitor, which weighs on the support factor.

Moody's continues to assume government support to be high and underpinned by interventionist government policies in support of the economy and a track record of government bail-outs, in recent years most visible for the local banking system. More specifically, Qtel benefits from a high direct and indirect government ownership level (68%) that has been maintained through the participation in past rights issues, government board representation and the existence of a golden share. Qtel is viewed by the Qatari government as a strategic vehicle carrying out investments in the telecommunication sector in order to diversify the national economy.

Moody's has also affirmed the Baseline Credit Assessment (BCA) -- or fundamental credit profile -- of 9 (equivalent to Baa2 on Moody's global rating scale). Moody's notes the relatively high debt leverage at Qtel's corporate level in addition to debt at international subsidiaries in higher risk markets. The exposure to emerging markets though is offset by diversification. Overall, reported group gross leverage has improved to 3.07x for the last 12 months ending June 30 from around 3.26x at 2009 year-end (to 2.02x from 2.21x on a net debt basis). On a gross debt basis this is at the lower end of what Moody's expects for Baa-rated telecommunication companies, whereas on a net debt basis Qtel operates well below the board's guidance of net debt/EBITDA ranging between 2.5 and 3.0 times. Moody's highlights that Qtel continues to have high cash balances, QR 12.35bn (USD 3.39bn) as of June 30, 2010, and has over recent quarters termed out its debt, which has strengthened the company's liquidity profile and significantly reduced the refinancing risk.

The A2 ratings and the stable outlook both assume that Qtel maintains the capacity to extend shareholder support to its international operations when needed. The stable outlook also takes into account a gradual strengthening of Qtel's BCA by an improving operating performance and higher dividend contributions from international subsidiaries in addition to maintaining group EBITDA margins around 50% effectively offsetting competitive pressure in its domestic market. The stable outlook also reflects no expected changes in government ownership and implicit support.

The principal methodologies used in rating Qatar Telecom Q.S.C. and Qtel International Finance Limited were The Application of Joint Default Analysis to Government related Issuers published in July 2010, and Global Telecommunications Industry published in December 2007. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Qtel is Qatar's incumbent integrated telecommunication services provider and has over the past years expanded into North Africa, the Middle East and Asia where it has operations in 16 markets. The company recorded revenues of QR 24 billion (USD 6.6 billion) and a net profit of circa QR 3.9 billion (USD1,070 million) in 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer satisfactory for the purposes of maintaining a credit rating.

Moody's Investors Service adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from reliable sources; however, Moody's Investors Service does not and cannot in every instance independently verify, audit or validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

London
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

DIFC - Dubai
Martin Kohlhase
Asst Vice President - Analyst
Corporate Finance Group
Moody's Middle East Ltd.
Telephone: +971-44-01-9536

Moody's Middle East Limited
Gate Village 4, Level 3
P.O. Box 113355
DIFC - Dubai
UAE

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