Telia bailout only hope for Netia

By : Roseanne Gerin

   Poland’s largest alternative telecom firm, Netia, could be headed for bankruptcy if its main shareholder and strategic investor, Telia, refuses to accept a new business plan aimed at generating a fresh round in funding, local analysts said last week.

   Telia, Sweden’s largest fixed-line telecom firm that owns a 48% stake of Netia, decided earlier this year not to give Netia additional capital. Progressive plunges in Netia’s stock price recently prompted speculation that the Polish telecom was on the brink of bankruptcy.

   “Telia is the only rescue for Netia to survive on the market,” said Andrzej Kasperek, a telecom analyst at Bank Handlowy brokerage.

   Analysts said they expected Netia to present its business plan at the end of October.

   Jolanta Ciesielska, Netia’s spokeswoman, said the firm was still completing the plan and had not yet set a presentation date, although the plan would be submitted to shareholders before 2002. Netia said in late September that representatives of Telia and Warburg Pincus – the global investment firm that holds 9% of Netia’s shares – who sit on Netia’s supervisory board had accepted the assumptions of the business plan.

   Netia carries about $800 million in debt and had a cash position of zł. 664 million ($158 million) at the end of the second quarter. Its current financing will last until the end of the second quarter of 2002.

   However, Netia’s interest payments to debt holders, totaling about zł. 440 million ($105 million) per year, are the biggest drain on the company’s finances, analysts said. If Telia refused to provide additional equity or assume some of the company’s debt once Netia’s existing capital dries up, the Polish telecom would likely go bankrupt, they said.

   “Only the huge participation of Telia in a capital increase could allow Netia to survive,” said Włodzimierz Giller, a telecom analyst at Erste Securities. “The question remains if Telia is interested.”

   Earlier this month, Bo Jacobsson, Telia’s chief financial officer, told a local business daily that Netia’s future depended on its business plan and its attractiveness to shareholders.

   Analysts, however, said Telia has been reluctant to invest any more money in the stagnant fixed-line telecom market in Poland, which the monopolist Telekomunikacja Polska (TPSA) continues to dominate. TPSA has about 11 million stationary lines across the country compared to Netia’s 352,000 at the end of the second quarter, giving the alternative provider a 3.2% share of the fixed-line market.

   Netia will release its third-quarter financial report on Nov. 7. Some analysts estimated that the company’s quarterly losses would reach zł. 200 million ($47.6 million) or more. In the third quarter of last year, Netia’s losses were almost zł. 136 million ($33 million). During the first half of this year, Netia’s losses totaled zł. 101 million ($24 million).

   In addition, Netia’s financial woes forced the company last Tuesday to abandon a contentious deal to acquire the local corporate telecom service Millennium Communications. In August 2000, Netia signed a contract to buy Millennium for up to $20.2 million to bolster its client base in Warsaw, but the deal was plagued by disagreements and led Netia to file an arbitration suit.

   In the course of this year, sell-offs of Netia shares in light of the firm’s questionable future have caused its stock price to plummet from zł. 72.80 a share on Jan. 2 to zł. 6.15 last Thursday.