Netia hopes to use U.S. public offering to protect No. 2 spot
But analysts said that move may not be enough. Last week they encouraged Netia's managers to think about teaming the company up with another large telecom operator here to successfully compete against monopolist Telekomunikacja Polska (TPSA).
"Netia is certainly losing ground, so they need to reposition," said Victoria Granger, a telecom analyst at Merrill Lynch. She suggested the company think about aligning with copper mining group KGHM Polska Miedz, which already has several telecom holdings, such as 50% in local telecom provider Telefonia Lokalna and 19.25% of mobile telephone provider Polkomtel (Plus GSM).
Netia said last week that it will go public in the United States through an issue of American Depository Receipts (ADR), which will represent its common shares. The company refused to disclose any details about the offering, except to say that it expects to sell the ADRs the second half of June. The U.S.'s Securities and Exchange Commission (SEC) has not yet formally accepted Netia's prospectus.
"Right now Netia is in the process of filing with the SEC and no details about the issue can be revealed," said Jeff Zelkowitz, a spokesman with Taylor Rafferty Associates, the investor relations company that advises Netia on international markets.
He said the company submitted a draft prospectus about a month ago, and is still waiting for the SEC's comments.
While Netia refused to disclose how large the equity offering would be or what stake it would represent in the company, a London analyst, who did not want to be named, estimated the ADR portion could be as large as $150 million. The company also plans to issue $100 million worth of dollar-denominated debt and $100 million in Euro-denominated debt in the near future.
The company already had $438 million in long-term debt at the end of the first quarter.
"Together with what the company got from Telia and Warburg Pincus, this amount should be enough for Netia's investment plans," the analyst said.
Netia raised an additional $50 million in April when it sold that amount of equity to its largest shareholder, Sweden's Telia, which now has a 37.25% stake. It was the second time Netia had done a capital raise this year. In January, Telia also injected more capital, flowing in $23 million directly and transferring its holding in two Netia subsidiaries, Netia South and Netia Telekom back to the main holding company.
In addition to Telia's investments, two weeks ago U.S. investment bank Warburg Pincus said it would spend $50 million for a 12.4 % stake in Netia. That is contingent, however, on the company completing its debt offerings.
The ADR offering will dilute all of Netia's existing shareholders, Telia included.
Netia has already invested $300 million in its network and plans to outlay another $600 million by the end of 2003. The goal is to build a network capable of supporting 800,000 lines. As of March 31, 1999, the company had 170,000 subscribers, and a cumulative business-to-total customer mix of 16.7%, up from 14% at the end of last year.
The company's net loss for 1998 totaled zl. 205.5 million ($54.1 million), compared to a net loss of zl. 85.4 million ($22.5 million) in 1997. However, revenue increased 140% to zl. 120.4 million ($31.7 million).
In the first quarter of 1999, Netia's revenue amounted to zl. 44.9 million ($11.5 million), while its net loss was zl. 215.5 million ($55.3 million).
While Netia may have more than enough cash to cover its buildout, analysts said that it still doesn't have all of the requisite licenses and coverage area to ensure its bid to be the key alternative to TPSA or quickly emerging Elektrim.
Teaming up with KGHM would strengthen Netia considerably, Merrill Lynch's Granger said, allowing Netia to maintain its hard-won position. Netia currently holds licenses for 23 areas of Poland, which combined cover 33% of the country's population. Those licenses include 10 of the largest urban areas, namely Gdansk, Poznan, Katowice, Krakow and Lublin.
While Netia has significant exposure in the local calling arena, analysts said that it must also be able to offer long-distance services to thrive.
"Netia has only local licenses in not-profit making areas," Granger said. "They need to go with somebody and (cooperation with) KGHM makes the most sense."
The company had hoped to improve its position by gaining the much-coveted local license for Warsaw in a tender. Those efforts were upset late last year, however, when the Communications Ministry awarded the long-distance tender to competitor El-Net.
Conglomerate Elektrim owns 90% of El-Net. Elektrim, which has emerged as a force of consolidation in the telecom sector, is seen as Netia's strongest competitor in the telecom market, outside of TPSA. Elektrim has local licenses that cover almost half of the country's 38 million population.
"Right now, the situation looks advantageous for Elektrim," said the telecom analyst based in London. "But the game has not finished yet."
"Netia is certainly losing ground, so they need to reposition," said Victoria Granger, a telecom analyst at Merrill Lynch. She suggested the company think about aligning with copper mining group KGHM Polska Miedz, which already has several telecom holdings, such as 50% in local telecom provider Telefonia Lokalna and 19.25% of mobile telephone provider Polkomtel (Plus GSM).
Netia said last week that it will go public in the United States through an issue of American Depository Receipts (ADR), which will represent its common shares. The company refused to disclose any details about the offering, except to say that it expects to sell the ADRs the second half of June. The U.S.'s Securities and Exchange Commission (SEC) has not yet formally accepted Netia's prospectus.
"Right now Netia is in the process of filing with the SEC and no details about the issue can be revealed," said Jeff Zelkowitz, a spokesman with Taylor Rafferty Associates, the investor relations company that advises Netia on international markets.
He said the company submitted a draft prospectus about a month ago, and is still waiting for the SEC's comments.
While Netia refused to disclose how large the equity offering would be or what stake it would represent in the company, a London analyst, who did not want to be named, estimated the ADR portion could be as large as $150 million. The company also plans to issue $100 million worth of dollar-denominated debt and $100 million in Euro-denominated debt in the near future.
The company already had $438 million in long-term debt at the end of the first quarter.
"Together with what the company got from Telia and Warburg Pincus, this amount should be enough for Netia's investment plans," the analyst said.
Netia raised an additional $50 million in April when it sold that amount of equity to its largest shareholder, Sweden's Telia, which now has a 37.25% stake. It was the second time Netia had done a capital raise this year. In January, Telia also injected more capital, flowing in $23 million directly and transferring its holding in two Netia subsidiaries, Netia South and Netia Telekom back to the main holding company.
In addition to Telia's investments, two weeks ago U.S. investment bank Warburg Pincus said it would spend $50 million for a 12.4 % stake in Netia. That is contingent, however, on the company completing its debt offerings.
The ADR offering will dilute all of Netia's existing shareholders, Telia included.
Netia has already invested $300 million in its network and plans to outlay another $600 million by the end of 2003. The goal is to build a network capable of supporting 800,000 lines. As of March 31, 1999, the company had 170,000 subscribers, and a cumulative business-to-total customer mix of 16.7%, up from 14% at the end of last year.
The company's net loss for 1998 totaled zl. 205.5 million ($54.1 million), compared to a net loss of zl. 85.4 million ($22.5 million) in 1997. However, revenue increased 140% to zl. 120.4 million ($31.7 million).
In the first quarter of 1999, Netia's revenue amounted to zl. 44.9 million ($11.5 million), while its net loss was zl. 215.5 million ($55.3 million).
While Netia may have more than enough cash to cover its buildout, analysts said that it still doesn't have all of the requisite licenses and coverage area to ensure its bid to be the key alternative to TPSA or quickly emerging Elektrim.
Teaming up with KGHM would strengthen Netia considerably, Merrill Lynch's Granger said, allowing Netia to maintain its hard-won position. Netia currently holds licenses for 23 areas of Poland, which combined cover 33% of the country's population. Those licenses include 10 of the largest urban areas, namely Gdansk, Poznan, Katowice, Krakow and Lublin.
While Netia has significant exposure in the local calling arena, analysts said that it must also be able to offer long-distance services to thrive.
"Netia has only local licenses in not-profit making areas," Granger said. "They need to go with somebody and (cooperation with) KGHM makes the most sense."
The company had hoped to improve its position by gaining the much-coveted local license for Warsaw in a tender. Those efforts were upset late last year, however, when the Communications Ministry awarded the long-distance tender to competitor El-Net.
Conglomerate Elektrim owns 90% of El-Net. Elektrim, which has emerged as a force of consolidation in the telecom sector, is seen as Netia's strongest competitor in the telecom market, outside of TPSA. Elektrim has local licenses that cover almost half of the country's 38 million population.
"Right now, the situation looks advantageous for Elektrim," said the telecom analyst based in London. "But the game has not finished yet."
