Debts hamper telecom stocks
By : Bogda Zukowska
Poland's telecom stocks are unlikely to increase anytime soon, with bearish sentiment toward European telecoms now shifting east, driving down prices and hampering the industry's ability to finance investment, analysts said last week.
"Investors have soured on the telecoms industry in Europe, and Polish telecom companies have followed the downward trend of the industry's stock prices across Europe," said Michal Marczak, telecoms analyst with BRE Bank Securities. He said the debt-ridden sector would only become solvent in three to four years after telecoms reduce debts and investments start to pay off.
Telekomunikacja Polska (TPSA), Poland's largest telecom operator, has seen its share price plunge 35% from zl. 40 in March 2000 to zl. 22 last week. And No. 2 fixed-line phone company Netia, which debuted on the Warsaw Stock Exchange (WSE) at zl. 117 last July, is now trading at zl. 33, a 75% drop.
"This situation is unlikely to change very soon due to market sentiment toward the industry and telecom companies' need for fresh money to finance heavy investment," Marczak said.
The waning interest in telecom stocks could also affect other listed companies with stakes in telecom operators. These include companies such as conglomerate Elektrim, which has a 51% stake in mobile phone firm Polska Telefonia Cyfrowa (PTC) through its subsidiary Elektrim Telekomunikacja, as well as copper firm KGHM Polska Miedz and oil company Polski Koncern Naftowy Orlen (PKN Orlen), both of which hold stakes in the Polkomtel mobile phone operator.
PTC and Polkomtel paid E650 million each for UMTS mobile phone licenses last year. "Telecom stocks were high last year and investors were optimistic about the future so they accepted the heavy debts of telecom companies," said Andrzej Kosinski, an investment adviser at ABN Amro Asset Management.
And as investors become more concerned about returns on their telecom investments, the stock prices of listed Polish companies affiliated with the telecom industry could also suffer. "Meanwhile, the great expectations about UMTS are over and investors have become more risk averse because they realized that UMTS might not pay off as quickly as had previously been expected," Kosinski said.
Analysts agreed that Netia has the biggest debt of Poland's top telecoms companies with liabilities expected to reach $833 million this year compared to $536 million in 2000, and losses slated to hit $120 million in 2001 compared to $89 million the previous year. As a result, Netia has been downgraded to "hold" by Austria's CA IB investment bank in its March 26 report. CA IB cited the "negative impact of (Netia's) rising debt levels."
Nevertheless, analysts hope Netia's finances will improve since the company entered Warsaw's lucrative fixed-line market last month. "Netia's operating results this year depend to a large extent on how the company will perform in Warsaw," said Andrzej Kasperek, an analyst with Bank Handlowy.
At the other end of the spectrum is TPSA, which analysts maintain is strong financially despite the company's estimated $3.8 billion debt compared to $2.8 billion in 2000. This year, however, the company is expected to post a net profit of $512.2 million compared to $434.1 million last year. The confidence in TPSA's ability to meet its financial commitments is highlighted by ratings agency Moody's Investors Services, which upgraded TPSA to Baa2 in February.
Also in February, PTC announced it borrowed $595.2 million to meet its UMTS license debt this year and to service outstanding debts. PTC's decision to go more than half a billion in the red, though, has not frightened parent company Elektrim. "Because PTC is developing, this debt is unlikely to be seen as deterioriating the company's finances," Marczak said. But analysts agreed the biggest impact on PTC's future will happen once negotiations between the company's major shareholders Elektrim, France's Vivendi and Germany's Deutsche Telekom are concluded.
Paradoxically, if Poland's telecoms were to seek fresh money in the form of both debt and equity on international markets, they would likely compete with their parent companies, which are also heavily indebted. Deutsche Telekom, which holds a 45% of stake in PTC, has debts of $57 billion, and France Telecom, the owner of a 35% stake in TPSA, is $54 billion in the red.
