Tough year for telecoms

Netia, Elektrim and Telekomunikacja Polska lead the pack of 2001's biggest losers.

Investors who bought into alternative fixed-line telecom provider Netia during the first trading session of 2001 and are still holding that stock have cause to be sad, angry or confused.

The company, one of the 20 biggest and most actively traded on the Warsaw Stock Exchange (WSE), has lost 95% of its value since that date, making it the biggest loser of the year. It is an extreme accomplishment during a period when the overall market has shed 24% of its value, blue chips have lost 35% and tech and telecom companies 61%.

"It has definitely been a bear market," said Michał Szymański, an investment manager with ING BSK Asset Management. "In some ways we are coming back to reality from (2000's) IT bubble and going back to fundamentals, but we also saw a significant economic slowdown and negative earnings of companies listed on the exchange. This was all reflected on the market." Netia, suffering from potentially overwhelming debt, is one of dozens of publicly traded firms that have disappointed investors in 2001.

"We have to solve the funding issue of Netia, but then I think you will see a very bright future," said Avraham Hochman, Netia's chief financial officer.

Though company officials remain publicly optimistic about the firm, analysts are less sanguine about the alternative long-distance carrier's immediate prospects in particular and the market's in general. Forecasts through the first half of 2002 are guarded as the economic picture remains cloudy and a number of high-profile companies slog through uncertain futures or at least a period of unpromising earnings.

Joining Netia at one extreme, one of Poland's biggest blue chips dangled precariously on the edge of bankruptcy as the Business Journal went to press Friday. Telecom and power concern Elektrim's share price is down more than 80% on the year, piling on losses last week as investors rushed to ditch shares, fearing an imminent collapse after the company issued a statement last Tuesday acknowledging the possibility of default.

The company, once a favorite of investors, struggled to raise last-minute financing to repay a minimum ?480 million due Monday for its convertible bonds, although with a seven-day grace period, the payment would not ultimately be due until Dec. 24.

"This is something relatively new to Polish capital markets, a Polish company faced with a real threat of bankruptcy," Szymański said. "This is quite important." Troubled Elektrim scrounged among banks and its partners, including its strategic partner Vivendi Universal, for immediate funding to pay off the bonds. The firm was also taking into consideration a hasty sale of its telecom assets, while it simultaneously was in talks to sell its cable business.

One analyst, however, downplayed the impact of a bankruptcy. "Elektrim is so unimportant at this point because it's a holding company," said Dalibor Vavruska, a telecoms analyst at ING Barings in London. "It doesn't matter if it goes bankrupt now."

According to a recent calculation by Raiffeisen Zentralbank (RZB), an involuntary liquidation of Elektrim's assets would leave the company worth zł. 20 per share, almost 140% higher than its closing price last Thursday.

"A voluntary or involuntary liquidation will not leave shareholders penniless," wrote Bob Creamer, a telecoms analyst at RZB's Warsaw office, in a Dec. 11 company brief.

Piling on to telecom and blue chip woes at the end of the year, Telekomunikacja Polska's (TPSA) share price was rocked last Thursday following an announcement by its largest union that it was considering a strike and a revised ratings outlook from Moody's. The company, the largest capitalized and heaviest traded stock on the WSE, closed last week down 44% for the year.

With blue chips and telecoms dragging the market lower, analysts offered pessimistic assessments for the first half of 2002.

"I hope that we will see a rebound in the second half of (2002) assuming we will resolve the budget problems, we will not run into higher inflation, we see some significant progress with the (European Union) EU," said Rafał Wiatr, head of research at Dom Maklerski Banku Handlowego. "With the chance we will not have deeper budget problems, along with possible growth rates of 3% or 4% in 2003, then there should be hope."

News on the exchange has not been entirely dreary through 2001.

In pharmaceuticals, Polfa Kutno has lead the market, surging almost 120% on the year. Drug maker Jelfa has also performed solidly, up almost 52% in 2001.

"For sure it is a defensive sector, because we all need to buy drugs," said Sylwia Jaskiewicz, an analyst with ING Barings who covers Jelfa. "But I also believe it is quite a good company. The share price is connected with performance and not just the sector."

- Jeffrey Sparshott and Roseanne Gerin