Elektrim, Netia trying to stave of bankruptcy

Poland's ailing telecoms and power group Elektrim last week sweetened its debt restructuring offer in a move to appease angry bondholders and avoid looming bankruptcy. Elektrim, which defaulted on nearly €500 million ($435 million) worth of bonds in December, had sought a 40% debt reduction and a three-year grace period for the rest of the debt, but the bondholders rejected the offer. The company said its new proposal included two possible scenarios: a 15% debt reduction and paying the rest of the debt by the end of 2007 or a 25% write-off and payment by the end of 2004. But the bondholders, who plan to meet March 15 to discuss Elektrim's offer, said the proposal was not satisfactory and reiterated their demands for full and quick payment of the debt.

"It's not a serious proposal," said Jarek Golacik of London-based Centaurus Capital fund, representing the majority of bondholders. If holders of the bonds fail to reach an agreement with Elektrim and court-ordered debt composition talks collapse, they may file for Elektrim's bankruptcy. In January the Warsaw court opted to launch composition talks instead of bankruptcy because Elektrim's assets outweigh its liabilities. Elektrim, whose market value slumped to some $168 million from a peak of $1.5 billion during the European telecoms boom, said its debt restructuring could succeed if it "sells some assets and/or gains new external sources of financing." But its most valuable 25% indirect stake in Eastern Europe's top mobile firm, Polska Telefonia Cyfrowa (PTC) is frozen pending a decision by a Vienna arbitration court, which is probing if Elektrim legally gained control of the operator before selling it to France's Vivendi Universal. Elektrim's share price jumped 6.7% to zł. 8.75 for the five-day period ending Thursday.

Netia saved Ailing telecoms firm Netia last week struck a life-saving debt-for-equity swap with bondholders but it still faces a struggle for survival in Poland's weak fixed-line telephony business. The long-awaited deal, which keeps the nation's second-largest operator from almost certain bankruptcy, will give bondholders 91% of the operator's shares after debt restructuring and a huge, as yet undetailed, new share issue. "(This debt) restructuring will allow us to build a solid capital structure and gives us the basis for growth in the future," Netia's acting chief executive Kjell-Ove Blom said. Netia, which has 31 million shares outstanding, has lost 95% of its value over the past 20 months as its drive to gain ground on former-monopoly Telekomunikacja Polska (TPSA) proved more difficult than expected and the firm's debts mounted. It has also felt the effects of Poland's fixed-line telephony slowdown, hurt by an ailing economy and a continued boom for more accessible and comparatively cheap mobile phones.

"Solving its financial problems is only one side of the coin. Netia must now think what services it wants to continue," said Włodzimierz Giller, analyst at Erste Securities in Warsaw. "Fourth-quarter results, during which they only gained several dozen new clients, show the market is stagnating. If this is the case, even financial restructuring only delays the agony." As a guarantee under the new share issue, Netia will issue €50 million ($43.5 million) of bonds issued by a Dutch-based Netia unit and guaranteed by the group's subsidiaries. This will be the operator's only long-term debt after restructuring. Shares surged 21.2% to zł. 4.11 for the five-day period ending Thursday. Pension funds cut positions Polish pension funds sharply cut back stock buying to just zł. 90 million ($21.4 million) in February from zł. 550 million ($130.9 million) the previous month, a Reuters poll showed last week. The survey of Poland's top 10 pension funds, the biggest players on the Warsaw bourse, showed the share of their assets invested in equities dropped to 26.9% from 27.3% the previous month. Fund managers were divided over the stock market outlook, with some saying low valuations of Polish stocks could attract buyers and others warning that the continuing economic slowdown would deter buying. But they saw limited room for an increase in their equity engagement as the biggest funds were close to the 40% limit they are allowed to invest in stocks. - Compiled from Reuters