Netia's comeback story
Everyone loves a comeback kid.
And the likely candidate for the biggest corporate comeback of late is Netia, the country's largest alternative telecom operator.
After near bankruptcy in 2002, the company has managed to turn itself around only a year after signing a restructuring deal with its creditors and digging itself out of its nearly E1 billion debt trench, in what the firm's president, Wojciech Mšdalski, calls a "precedent-setting undertaking."
Last November, the company completed a debt-for-equity swap with its creditors, giving them control of about 91% of the company's capital. A couple of months ago, a new shareholder structure and supervisory board were put into place. In February, Netia issued 312.6 million new H series shares on the Warsaw Stock Exchange and was relisted on the American Nasdaq index for high-tech companies.
As the final step of its restructuring, Netia is about to issue a €49.9 million payment to former noteholders, essentially buying back its last outstanding debt. Once completed, Netia, whose market capitalisation stands at around €206.5 million (zł. 863 million), will be debt-free and on sound financial ground with about €43 million (zł. 180 million) in cash. CA IB forecasts a loss of €103 million (zł. 431 million) for Netia this year, but a profit of around €17 million (zł. 71 million) in 2003.
Now, Mšdalski's main task is to develop a new strategy for the company, which he will present to the supervisory board no earlier than late May. With no financial worries for the company, the strategy will focus on building value for shareholders by growing the business, in part by allowing for some "opportunistic moves, especially on merger and acquisition activities," he said.
Netia, with more than 340,000 subscribers, will peruse other alternative operators for possible M&As to build its client base and strengthen its financials, but it will only consider a move when those operators have restructured their own debts or have presented a financial recovery plan that's workable.
"We are the only one that has a healthy balance sheet," Mšdalski said. "At the same time, the industry is ripe for consolidation, and that positions us well in the driver's seat."
The fixed-line telecom industry, here as elsewhere, has been badly battered and buried under seemingly insurmountable piles of debt. The government is trying to jump-start the sector by consolidating its own scattered telecom holdings under the aegis of the merged operators, Tel-Energo and NOM, while others, such as Elektrim Telekomunikacja, jointly owned by France's Vivendi and Elektrim - the latter of which faced its own near bankruptcy and restructuring - are fending for themselves.
The most likely targets for Netia are Telefonia Dialog, owned by copper producer KGHM Polska Mied, and El-Net, owned by Elektrim Telekomunikacja. Dialog, based in Wrocław, is the country's second largest alternative telecom operator with about 250,000 subscribers, but it is laden with around €311 million (zł. 1.3 billion) in debt. KGHM has unsuccessfully searched for a buyer or a strategic investor for the operator for about two years.
Apart form its debt load, Dialog seems a natural partner for Netia. Michał Marczak, a telecoms analyst at BRE Bank Securities, says that once Dialog restructures, Netia can start discussing a merger, probably within one to two years. Netia would be unlikely to purchase Dialog outright since the company is quite an expensive prospect worth an estimated €143.5 million (zł. 600 million) without its debt, he said. Marczak sees such a merger as "the only way to really cut costs because separately each business is too low to be profitable." Meanwhile, Mšdalski says that it's possible that Netia could do cashless transactions when it comes to prospective M&A activities.
Bydgoszcz-based El-Net, with 60,000 lines, is a likely acquisition candidate for Netia. Despite having €72 million (zł. 300 million) in debt, the telecom operator is less expensive than Dialog, so Netia might be able to pay cash for it, depending on the price, since it will have a cash surplus of around €44.3 million (zł. 185 million) after the €49.9 million bond buyback. Both Netia and Dialog are completing due diligence of El-Net, according to Marczak.
As for the government's plan to consolidate its telecom stakes and create a national rival to dominant operator and former monopolist TPSA, which could include privately owned operators, Mšdalski stresses that there would hardly be a chance that Netia would join in the undertaking since the entities involved are all cash-strapped and indebted themselves.
Building value for shareholders should become easier for Netia when new telecommunications legislation is enacted, giving the country's market regulator stronger enforcement powers, Mšdalski said. Despite the full market liberalisation of the telecom sector at the beginning of the year, there is still an unlevel playing field for alternative operators. The new telecom law, modeled on updated EU legislation, will be drafted to ensure fairer competition.
And despite its own turnaround, it's unlikely that Netia itself will be ogled as a takeover target by big European players since they all are mired in their own financial problems and unable to purchase any new assets for the next couple of years, Marczak said.
And the likely candidate for the biggest corporate comeback of late is Netia, the country's largest alternative telecom operator.
After near bankruptcy in 2002, the company has managed to turn itself around only a year after signing a restructuring deal with its creditors and digging itself out of its nearly E1 billion debt trench, in what the firm's president, Wojciech Mšdalski, calls a "precedent-setting undertaking."
Last November, the company completed a debt-for-equity swap with its creditors, giving them control of about 91% of the company's capital. A couple of months ago, a new shareholder structure and supervisory board were put into place. In February, Netia issued 312.6 million new H series shares on the Warsaw Stock Exchange and was relisted on the American Nasdaq index for high-tech companies.
As the final step of its restructuring, Netia is about to issue a €49.9 million payment to former noteholders, essentially buying back its last outstanding debt. Once completed, Netia, whose market capitalisation stands at around €206.5 million (zł. 863 million), will be debt-free and on sound financial ground with about €43 million (zł. 180 million) in cash. CA IB forecasts a loss of €103 million (zł. 431 million) for Netia this year, but a profit of around €17 million (zł. 71 million) in 2003.
Now, Mšdalski's main task is to develop a new strategy for the company, which he will present to the supervisory board no earlier than late May. With no financial worries for the company, the strategy will focus on building value for shareholders by growing the business, in part by allowing for some "opportunistic moves, especially on merger and acquisition activities," he said.
Netia, with more than 340,000 subscribers, will peruse other alternative operators for possible M&As to build its client base and strengthen its financials, but it will only consider a move when those operators have restructured their own debts or have presented a financial recovery plan that's workable.
"We are the only one that has a healthy balance sheet," Mšdalski said. "At the same time, the industry is ripe for consolidation, and that positions us well in the driver's seat."
The fixed-line telecom industry, here as elsewhere, has been badly battered and buried under seemingly insurmountable piles of debt. The government is trying to jump-start the sector by consolidating its own scattered telecom holdings under the aegis of the merged operators, Tel-Energo and NOM, while others, such as Elektrim Telekomunikacja, jointly owned by France's Vivendi and Elektrim - the latter of which faced its own near bankruptcy and restructuring - are fending for themselves.
The most likely targets for Netia are Telefonia Dialog, owned by copper producer KGHM Polska Mied, and El-Net, owned by Elektrim Telekomunikacja. Dialog, based in Wrocław, is the country's second largest alternative telecom operator with about 250,000 subscribers, but it is laden with around €311 million (zł. 1.3 billion) in debt. KGHM has unsuccessfully searched for a buyer or a strategic investor for the operator for about two years.
Apart form its debt load, Dialog seems a natural partner for Netia. Michał Marczak, a telecoms analyst at BRE Bank Securities, says that once Dialog restructures, Netia can start discussing a merger, probably within one to two years. Netia would be unlikely to purchase Dialog outright since the company is quite an expensive prospect worth an estimated €143.5 million (zł. 600 million) without its debt, he said. Marczak sees such a merger as "the only way to really cut costs because separately each business is too low to be profitable." Meanwhile, Mšdalski says that it's possible that Netia could do cashless transactions when it comes to prospective M&A activities.
Bydgoszcz-based El-Net, with 60,000 lines, is a likely acquisition candidate for Netia. Despite having €72 million (zł. 300 million) in debt, the telecom operator is less expensive than Dialog, so Netia might be able to pay cash for it, depending on the price, since it will have a cash surplus of around €44.3 million (zł. 185 million) after the €49.9 million bond buyback. Both Netia and Dialog are completing due diligence of El-Net, according to Marczak.
As for the government's plan to consolidate its telecom stakes and create a national rival to dominant operator and former monopolist TPSA, which could include privately owned operators, Mšdalski stresses that there would hardly be a chance that Netia would join in the undertaking since the entities involved are all cash-strapped and indebted themselves.
Building value for shareholders should become easier for Netia when new telecommunications legislation is enacted, giving the country's market regulator stronger enforcement powers, Mšdalski said. Despite the full market liberalisation of the telecom sector at the beginning of the year, there is still an unlevel playing field for alternative operators. The new telecom law, modeled on updated EU legislation, will be drafted to ensure fairer competition.
And despite its own turnaround, it's unlikely that Netia itself will be ogled as a takeover target by big European players since they all are mired in their own financial problems and unable to purchase any new assets for the next couple of years, Marczak said.
