Elektrim looking to breathe easier by renegotiating its debt
Conglomerate Elektrim, which is faced with mounting debt from aggressive telecom expansion, has gone to its bankers to try to restructure its more than $410 million in short-term debt, the Business Journal has learned.
"That's the best thing they can do," said a source close to Elektrim. "Other solutions can be good, but need time."
The company's growing debt load, and the nine-month zl. 209.4 million ($52.35 million) loss it was partially responsible for, had market watchers last week speculating that the Polish conglomerate needed to take on a strategic investor to help pay for its telecom activities. Multinationals such as France's Vivendi, United Pan-Europe Communications (UPC) and Deutsche Telekom were all floated as possible partners.
In the meantime, though, Elektrim needs to come up with about $500 million to service its current obligations, analysts said. After nine months, the company had short-term debt of zl. 1.64 billion ($410 million) and long-term debt of zl. 1.1 billion ($275 million).
The list of main creditors includes Bank Pekao, Bank Slaski, BRE Bank, Wielkopolski Bank Kredytowy (WBK) and BIG Bank Gdanski. Analysts said restructuring the debt should give Elektrim some breathing room. Without it, they said, the company could easily become a takeover target.
"Right now Elektrim is in a very difficult situation to defend itself," said Rafal Gebicki, head analyst with Raiffeisen Capital & Investment Polska.
In addition to Vivendi, Deutsche Telecom and UPC, analysts listed several different firms as potential "predators" for Elektrim. Other names include some companies already involved in Elektrim, such as Acciona, Spain's leading service company operating in the telecom sector, Dutch conglomerate Eastbridge and a number of European telecoms. Acciona already has a partnership agreement with Elektrim, and Eastbridge is reported to hold a package of the company's convertible bonds.
"Every solution is possible," said Piotr Wozniak, analyst with CDM Pekao Securities. "Yet, each can be accompanied by an explanation as to why it's possible and why it's not."
So far, only UPC has confirmed that it is in exploratory discussions with the company. "We are interested in Elektrim," said Nimrod Kovacs, executive chairman of UPC's Central European operations. "We talk, but not necessarily about one subject."
He said that Elektrim would help to connect the dots for a lot of UPC's operations in Poland, which concentrate on media and cable television after the company's purchase earlier this year of @Entertainment. He added that UPC is also interested in bidding for a long-distance license, and Elektrim could be a partner in that venture. The long-distance licenses will require that one of the entities in the winning consortia be Polish.
But any foreign investor interested in taking a piece, or maybe all, of Elektrim's telecom subsidiary, Elektrim Telekomunikacja, will be limited by the restrictions Poland places on foreign involvement in the telecom sector, analysts said. Under Polish law, foreigners are unable to own more than 49% of a telecom company operating here. That will change in 2002 when the telecom market is liberalized.
A foreign investor would not need 30% to control Elektrim, though, as the company has a highly dispersed shareholder structure.
Elektrim's share price deflated to an all-time low of zl. 25.9 last Monday as investors sold on the news of the nine-month loss. Speculation that the company could be talking to potential partners, however, caused the shares to rise 4.2% to close at zl. 27 on Tuesday.
"All these massive sales on Friday and Monday were caused by panic that the company might go bankrupt," said Zbigniew Lapinski, analyst with Deutsche Bank. "Now investors see they overreacted."
Elektrim does have other options open to it besides bringing on a strategic investor, analysts said. The company could exchange its ECU 460 million worth of convertible bonds into equity. That would cover the company's current financial needs of $500 million, but it would require renegotiating the terms of the issue: the conversion price of zl. 64 would have to be changed, analysts said.
"While it seems to be the best solution, it's also the least realistic," said Deutsche's Lapinski. He said that converting the bonds would require Elektrim to issue more shares to meet a likely two-for-one conversion, and any new issue would require shareholder approval.
Another solution open to Elektrim is to divest of some assets, such as Elektrim Kable, or power plant Patnow-Adamow-Konin (PAK), analysts said.
"Telecom is Elektrim's main asset," Gebicki said. "They have a full (range of) services: fixed-line telecom, mobile, cable TV. That's the most attractive area."
One aspect of that business, though, mobile telephone firm Polska Telefonia Cyfrowa (Era GSM), has not had a good year. Era racked up a nine-month net loss of zl. 195.8 million ($46.23 million) vs. the zl. 27.8 million ($7.94 million) net loss the company suffered in 1998.
"The strong growth in net sales and gross margin in service revenue and fees was largely offset by increased costs of sales for promotional telephones and accessories," the company said in a report filed last week with the U.S. Securities and Exchange Commission (SEC).
Era also blamed its widening net loss on larger debt-servicing costs, which more than doubled to zl. 360.5 million ($90.13 million) in the first nine months of this year.
