Polkomtel becomes first mobile phone operator to issue commercial paper
The country's second largest mobile phone operator announced last Friday that its first-quarter net profit increased a whopping 556% to zl. 145 million ($33 million) from zl. 22.1 million ($5.6 million) in the same period last year, and at the same time the company made known its plans to issue zl. 350 million ($80 million) worth of debt obligations.
"Clearly (Polkomtel) is trying to raise money to finance further expenses and reduce foreign exchange liabilities," said Stephen Pettyfer, a telecom analyst at Merrill Lynch (London).
Polkomtel plans to issue zl. 350 million of commercial paper unsecured short-term debt obligations issued by banks and other corporations to investors with temporarily idle cash to raise additional funds for financing its current assets, rolling out its mobile network infrastructure and developing new products, the company said in a news release. The commercial paper program will run for two years and the notes will have maturity dates of up to one year. This will be the first issuance of commercial paper by one of Poland's three mobile phone operators.
"Going forward (Polkomtel) has certain requirements like all companies to invest more money," Pettyfer said. "They're making money, but not enough to cover their (projects)."
One analyst said that Polkomtel was following the trend of other Polish telecom companies in issuing corporate debt in local currency to protect itself against possible losses from future currency devaluation. "It's a very correct step," said Zbigniew Lapinski, a regional telecom analyst at Deutsche Bank. "All operators in the region are doing the same by switching from foreign currency to local currency (for debt obligations) due to the big devaluation of the zloty against the euro and the dollar."
Other telecom companies recently have suffered heavy financial losses due to the effects of currency devaluation on their long-term debt instruments that were issued in foreign currencies. Polska Telefonia Cyfrowa (Era GSM), for example, had a loss of zl. 122.5 million ($31.4 million) in 1999 due to foreign exchange losses caused by the weakening zloty.
Polkomtel will issue the commercial paper at a still unspecified discount to corporate buyers in a non-public offering, and redeem the notes at face value, according to the company's release.
The company signed an agreement to issue the commercial paper with Bank Handlowy, Deutsche Bank Polska and ABN Amro Bank. Polkomtel said it signed another agreement with the same three banks for zl. 230 million ($52 million) credit to back up the short-term obligations. "The raised funds will be used only when market conditions prove less favorable than Polkomtel has expected, or when it becomes necessary to finance the redemption of the matured commercial papers in the event of no possibility to locate new tranches," the company's statement said.
Polkomtel, which operates under the Plus GSM brand name, has 1.8 million subscribers. It's shareholders include oil group Polski Koncern Naftowy (PKN), copper maker KGHM Polska Miedz, Britain's telecom company AirTouch Communications, Danish telecom operator TeleDanmark, Polskie Sieci Elektroenergetyczne, Weglokoks, Tel-Energo and TelBank.
