KGHM pays off TL debt
By : Jeffrey Sparshott
KGHM Polska Miedz (http://www.kghm.pl/en) last week paid off $70 million of Telefonia Lokalna's (TL) debt, upping its investment in the money-losing, wholly owned subsidiary while the copper mining concern struggles through its own weaker revenues.
KGHM is looking for a strategic investor to help finance and run TL, though possible candidates are themselves strapped as telecom stocks are battered and earnings are down in a slowing economy, analysts said.
"KGHM has to find a strategic investor for Telefonia Lokalna," said Radoslaw Czyrko, an analyst with Erste Bank, adding that TL is a very cash-intensive business that aims to have 500,000 clients but now has 160,000-200,000.
"If they want to increase subscribers, they need new cash for investment for new equipment," he said. "KGHM announced that it will invest zl. 350 million ($83 million) and buying these bonds is part of this investment. I think that KGHM wants to find a strategic investor to show that Telefonia is an important player in the telecom business. If Telefonia can increase subscribers, (KGHM's) value will be higher in the market."
KGHM Investment Relations Director Wojciech Marciniak said that more details related to TL's future should be available in the course of the year, though he would not specify a timeline for coming up with a list of potential partners. The process is likely to be hampered by a telecom sector in the doldrums, with potential investors such as Netia brutalized by investors and weak market sentiment.
TL reported a zl. 66 million ($15.7 million) net loss in the first half of 2001, with zl. 163 million ($38.8 million) in revenue. Last year the country's second-biggest alternative phone carrier reported a zl. 154.4 million ($35.1 million) net loss on zl. 67.1 million ($15.3 million) in revenue. TL's losses will impact KGHM's second-quarter consolidated results, which the group is scheduled to release Aug. 14. The company's second-quarter report to the Securities and Exchange Commission (KPWiG) is due out this week, while preliminary unconsolidated figures released late last month to the Central Statistical Office (GUS) indicated a first-half net profit of zl. 57.8 million ($13.8 million), with revenues down 7.7% from the same period the previous year to zl. 2.2 billion ($516.7 million).
The company and analysts blamed declining copper prices and the appreciation of the zloty for deteriorating results.
"By the end of the year, if copper prices remain in a downward trend, the copper business and telecom business together could lead to a consolidated net loss for the group," Czyrko said.
In addition to problems in the telecom sector and on international markets, KGHM's home front is bothered by troubles with the Trade Union of Employees of the Copper Industry (ZZPPM). The two sides last week failed to make any progress over wage and other disputes during arbitration. ZZPPM is asking for an 8% increase in monthly wages effective from July 1 on top of a raise granted last year, effectively increasing wages by 15% from 2000 to 2001.
"The situation is not so easy," Czyrko said. "It is mostly a political issue in this case. The chairman of the trade union (Ryszard Zbrzyzny) is a member of Parliament and he is using this as part of his campaign. With copper prices so low and low profitability, it is certain they will not receive this salary increase. I don't think there will be a strike but the situation will be dangerous."
Zbrzyzny, a member of the Democratic Left Alliance (SLD) whose district is in the Dolnoslaskie Voivodship, could not be reached for comment.
For KGHM's 18,545 workers, the average monthly salary in 2000 was zl. 4,185 and this year will be zl. 4,650. The average gross monthly wage in Poland's enterprise sector during the second quarter of 2001 was zl. 2,164, according to GUS.
The Treasury Ministry, which controls about half of KGHM's stock, is considering floating 10% on the market, though Marciniak and Czyrko both said that is increasingly unlikely any time soon because market conditions are poor.
KGHM's stock has lost about 43% of its value during the past 52 weeks.
