Merrill holds steady on Elektrim
Betting on the prospect of Elektrim's cloud of financial problems clearing in the coming months, investment bank Merrill Lynch last week reiterated its "accumulate" recommendation for the stock.
The report, dated Nov. 18 but released last week, said that the company's poor ability to communicate its circumstances with the market had led to the large fluctuations that its stock price has seen recently. That instability could come to a halt, however, if France's Vivendi finally declares what future involvement it will have in Elektrim.
Vivendi is weighing whether to turn a planned $750 million investment in Elektrim Telekomunikacja into a $618 million loan or leave it as the originally intended 30% equity stake.
"The key to restoration of value lies with the future intentions of Vivendi," the report said.
Vivendi will probably choose to go ahead with the equity stake, the report said. Recovering a loan if Elektrim defaults could be too difficult, the report said.
Elektrim hit an all-time low of zl. 25.9 two weeks ago, but has rebounded recently. The stock closed Friday at zl. 33.3, off 55% from the zl. 74 Elektrim was trading at in late October.
Merrill values Elektrim at $1 billion, or zl. 58 per share. That valuation carves out the $1.7 billion in debt Elektrim owes. Elektrim has tried to divest of some of its energy assets to pare down that debt, but Merrill Lynch said that the company's goal of raising $300 million was too modest. Merrill also pointed out that the company is buying without solving its long-term problems.
Elektrim needs $30 million by year-end to meet interest payments to bondholders. It also has to cough up $49 million for an installment on the Warsaw local telephone license it won last year, the report said. Given these parameters, the company needs to accelerate asset sales by completing the sale of electrical equipment manufacturers Elester and Apena to General Electric (GE) subsidiary GE Power Controls Iberica SL, and possibly by also selling part of its 20% stake in the PAK power plant.
