Elektrim breathes freely after Vivendi investment
Elektrim got its bankers off its back last week when France's Vivendi agreed to invest $1.2 billion in the Polish company for a 49% stake in its telecom subsidiary.
The cash injection will help Elektrim, which had been quaking under a mountain of debt, lower its debt-to-equity ratio to less than 40%, Elektrim CEO Barbara Lundberg said. That is down from the 2000% analysts estimated the company's debt-to-equity ratio could have hit by the end of the year if it had not reduced its debt burden.
Lundberg said that the investment dramatically improves Elektrim's ability to renegotiate loan terms with its banks, which the company had been in the process of doing.
"I guess that now the banks will be happy," Lundberg said.
At the end of September, Elektrim had short-term debts of zl. 1.64 billion ($390 million) plus zl. 1.1 billion ($261 million) in long-term obligations. In addition, Elektrim has zl. 1.6 billion ($381 million) in convertible bonds.
Vivendi had originally wanted to invest $618 million in Elektrim's telecommunications subsidiary, Elektrim Telekomunikacja. That investment, however, was contingent upon Elektrim increasing its stake in mobile telephone company Polska Telefonia Cyfrowa (Era GSM) to 51% and bringing that company into the new telecom subsidiary. Deutsche Telekom, however, objected to Elektrim increasing its stake by buying shares from BRE Bank and insurer Warta. Deutsche said it had first refusal rights on those shares. Deutsche owns 49% of Era.
That scuffle caused Vivendi to turn its planned $615 million investment into a loan, further stretching Elektrim's finances.
The common interests of Deutsche Telekom and Elektrim had many analysts and insiders speculating the German firm would take a stake in the troubled company. Talks between the two firms continued until the day before Vivendi and Elektrim crafted their agreement.
"There were always two options," said Rafal Gebicki, analyst with Raiffeisen Capital & Investment Polska. "Deutsche Telekom or Vivendi."
Elektrim's mounting debt had several insiders last week saying that the company was close to declaring bankruptcy. That weak situation actually played to Deutsche Telekom's favor, as in that circumstance the German company would have the first right to buy Elektrim's stake in Era at its nominal value.
"It was like in a real thriller," a source close to the negotiations said about the push and pull between Vivendi and Deutsche Telekom.
The agreement means that Vivendi, which had already invested $3 million in the subsidiary, will convert the remaining $615 million loan into equity. The company will also invest an additional $400 million to increase its stake to 49%. Before that, however, Vivendi will inject $250 million to help Elektrim meet its upcoming debt payments. All three of those figures equate to $1.27 billion.
Vivendi is supposed to pump $250 million of that into Elektrim by Dec. 18, which will help the company make its debt payments, analysts said.
Deutsche's offer to Elektrim was far less sweet, a source close to the Polish company said. Deutsche offered to lend Elektrim $1 billion in exchange for the German company being able to increase its stake in Era to 59% which would have caused Vivendi to exit. That would have been a painful exercise for Elektrim. Under terms of the initial loan by Vivendi, Elektrim would have had to pay the French firm $200 million to give up all claims on the telecom subsidiary.
Vivendi's decision to align itself with Elektrim means that the battle with Deutsche over Era will continue. Vivendi has agreed to share with Elektrim any arbitration or court costs that may arise from the dispute. Elektrim has talked about filing a counter-lawsuit to Deutsche Telekom's claim.
"Vivendi decided let's go together," Lundberg said. "It means Vivendi is sure in this conflict that Elektrim is right."
