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By Joey Gardiner, 29 August 2000 00:25

NEWS BT may be forced to spin off parts of its business earlier than expected due to a downturn in its long-term credit rating. BT's £30bn debt has prompted the adjusted rating from financial services firm, Standard & Poor (S&P). Analysts predict that the UK telecoms giant will have to sell off attractive business units to keep finances stable. BT's long-term credit status affects its ability to raise money to finance debt. A further fall could significantly impact the company's credibility in the city. Robin Duke-Woolley, senior consultant at analyst house Schema, said: "BT will have to bring its spin off plans forward. It is somewhat caught between a rock and a hard place as the markets are not right at the moment, but it will have to do something within the next nine months." BT currently plans to float its directory services arm, Yell, before the end of the year and is evaluating possible disposals to retain its current credit rating. David Harbage, a fund manager at Barclays Stockbrokers, agreed the drop would force BT to act. He said: "It wouldn't surprise me if BT sold off some of its non-strategic overseas assets. Investors will have no doubt that it can't afford another drop in credit rating." Last week BT dropped four notches, from an AA plus to an A rating, in S&P's reassessment of its creditworthiness. Significantly, S&P had a negative outlook for the company, suggesting BT could fall to the lowest investment grade rating, BBB. S&P cut BT's rating because of the debt it has incurred through the acquisition of 3G mobile licences and German telco Viag Interkom. A statement from S&P said delays in receiving "asset sale proceeds" could lead to a further downgrade. A fund manager from a major high street bank said: "The biggest problem for BT is that S&P have raised the spectre of a BBB rating. The next time BT come to me asking for money, I will ask them for significantly more return." BT is not alone in having its rating cut as most European telcos suffer from the high cost of 3G mobile licences. However, BT has been hit hardest, with Vodafone managing to keep a positive rating outlook.