Greek and Turk telecom firms ponder sale of Bulgaria’s BTC

SOFIA / ATHENS (combined reports) – Greek telecoms firm OTE will be the frontrunner to win Bulgaria’s lumbering state phone company BTC if it decides further expansion into its Balkan backyard is worth the high investment cost linked to a bid. OTE management has until Monday to decide if it will put in an offer for up to 65 percent of the outdated and overstaffed fixed-line monopolist in one of Europe’s poorest countries. «The bid price is not the issue. How much capital expenditure is needed for infrastructure is the main issue. I don’t know if it makes a lot of sense,» an OTE company source told Reuters. BTC sell-off urgent Bulgaria is running out of time to sell BTC, which loses its monopoly at the end of this year, and would favor a strategic investor such as OTE to carry out the deep restructuring the state monolith requires. Sofia expects little hard cash for the firm, whose profit potential is cloudy, and now regrets the previous government’s rejection of a $610-million bid by OTE and Dutch KPN in 2000, at the height of the telecoms market boom. «While BTC could be worth up to a billion euros in the medium term, the Cabinet is likely to get an evaluation of 200 to 300 million euros ($180-280 million) for 100 percent,» a Sofia-based international investment banker said. That equates to a bidder paying little more than the $100 million foreseen by the Cabinet as a minimum revenue from the sale. Earning more would be a bonus for the government’s Western-educated reformers, for whom the BTC sale is a test of their ambitious sell-off policies. OTE, still 42-percent state-owned, has been focusing on fast-growing mobile telephony and investing in the Balkans ahead of the loss of its Greek fixed-line monopoly. But its international forays have, to date, not been overly successful and it will be tough to convince investors that BTC is an option worth pursuing. If it decides against expanding a regional network that already includes fixed-line investments in Serbia and Romania and mobile interests in Albania, the Former Yugoslav Republic of Macedonia (FYROM), Romania and Bulgaria, private equity firms will have a clearer run at BTC. Several London-based equity houses attracted to Central Europe by low telecoms valuations have surveyed BTC but they would drive a hard bargain to ensure they can sell out at a profit some years down the line. OTE may bid to keep out regional competitors like Deutsche Telecom-controlled Matav, to whom it lost out in late 2000 in bidding for Maktel, the dominant operator in FYROM. Matav and Turk Telecom are also considering bids for BTC. But any buyer would face a hefty spending bill to revamp BTC’s creaking analogue phone network. The rules of the European Union, which Bulgaria wants to join, demand a quadrupling of the digitalization rate to 80 percent from 17 percent currently, at a likely cost of more than 400 million euros. While BTC made a net profit of 241 million levs ($115 million) in 2001, a 43-percent increase from 2000, competition will hit from next year with several cable operators, backed by foreign capital, ready to launch phone operations. In theory, profits will be boosted by swinging staff cuts, and the low phone penetration of 35 percent in a country of 8 million people offers scope for expansion, especially as some lines are shared between families. But analysts question that growth can be expected in a country where the average monthly income is $100 and where BTC is technologically deficient in the mobile market. BTC owns 39 percent in Mobikom, an analogue operator in which Britain’s Cable and Wireless holds 49 percent. Whoever buys BTC will have an option to buy a GSM license but OTE already owns GloBul, Bulgaria’s second-ranked GSM operator. Fund interest It remains unclear how many equity funds are interested in BTC and what partnerships they might strike up. So far, only London’s Charlemagne Capital, a central European fund, has said it may bid with a telecom firm and a financial investor. Sources say OTE, which is being advised by ABN Amro, may seek a fund partner, but only later in the purchase process. Eastern Europe’s development bank, the EBRD, has said it may inject fresh capital into BTC after its sale, reassuring investors. Equity houses are targeting telecom auctions in Eastern and Central Europe, hoping to secure cheap telecom assets that could be restructured and sold for a profit after three to five years. Several circled Cesky Telecom during the Prague government’s recent auction of a majority stake in its dominant operator. But Sofia, keen for revenue to ease a bulging current account deficit, does not have the same negotiating room as the Czechs, who, in the end, postponed the sale until conditions in the distressed telecoms markets allowed for better bids. «They had better hope that OTE or Matav come through because I think private sector valuations will be very, very low,» said a London corporate financier. Turkish interest According to a Reuters dispatch from Istanbul yesterday, leading Turkish industrial group Koc Holding said it had agreed with landline monopoly Turk Telekom to join forces in a bid for Bulgarian state telecoms operator BTC. Koc Holding told the Istanbul Stock Exchange (IMKB) its subsidiary Koc Bilgi Grubu Iletisim ve Teknoloji Hizmetleri AS had signed a letter of intent with Turk Telekom for the partnership ahead of a deadline to submit bids. Turk Telekom has sent a team to Sofia to size up the company but has not yet presented a final bid.(Reuters, Kathimerini)

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