Telecoms firms could raise up to 75 billion euros
LONDON – Major European telecoms operators have room to raise -75 billion ($98.41 billion) of debt if they raise leverage to 2.5 times earnings as they pursue acquisitions aimed at boosting returns to shareholders, BNP Paribas said in a research report. If one takes account of the increased earnings that would come through mergers and acquisitions, the figure rises to nearly -100 billion, senior credit analyst Roger Appleyard said in a report published this week based on estimates to the end of 2007. The report titled «Accident Waiting to Happen?» argues this releveraging could lead to more severe ratings downgrades than the market may be expecting, although Appleyard said he does not believe that debt increases are inevitable. «I put the question mark there because you could argue that it’s not inevitable,» he told Reuters in a telephone interview yesterday. «(Telecoms companies) are under shareholder pressure, but some of them have demonstrated in the past that without extra leverage, you can actually grow your share price through a well-managed business.» BT, Vodafone healthy He cited the example of BT Group Plc, where debt has remained stable, while the share price has risen close to 50 percent in the past year. The company with the largest capacity to raise debt based on year-end 2007 forecasts is mobile phone giant Vodafone – even after the $11.1 billion cash acquisition of a majority stake in Hutchison Essar, the report said. It could raise -15.75 billion if it raised leverage to 2.5 times EBITDA – forecast to be -18.6 billion at year-end, the report said. Current net debt to EBITDA at the 10 companies in the report is 2.0 times or below. Bad ratings memory Memories of what Appleyard described as the «2001-2002 debacle» – when France Telecom’s credit ratings, for instance, fell to the bottom of the investment-grade category – may act as a restraint on how far companies are willing to go. «Existing management teams, existing CEOs are very uncomfortable with low triple B (ratings),» he said. «Management teams are still quite conservative… They haven’t got the binoculars out, looking for the next target.» But ratings could still fall from their current low-single-A or high-triple-B range to the middle of the triple-B category, he said, with possible candidates for that kind of move being Holland’s KPN, OTE, Telekom Austria, Telecom Italia and BT. «The sector remains under-leveraged from a shareholder’s viewpoint,» the report said.
