Royal KPN shares plunge

June 1, 2001
Web posted at: 1110 GMT

LONDON (CNN) -- Royal KPN shares plunged after a report said the telecom operator was planning to sell shares worth up to $4.7 billion to reduce its debt.

The Netherlands' dominant phone company is preparing Europe's second-largest rights issue to rescue it from debts that threaten to swallow almost all its available cash, the Financial Times said.

Shares in KPN fell 18 percent to 9.08 in early trade in Amsterdam. KPN shares have fallen 24 percent this year and are 88 percent below their all-time high of 75.10 hit in March 2000.

"We are looking at all sorts of possibilities to improve our balance sheet," KPN said. "No decisions have been made yet."

The shares are expected to be sold at a deep discount of about 50 percent and follows a similar move by British Telecommunications (BT-A), which sold shares worth £5.9 billion ($8.4 billion) to cuts its debt mountain.

KPN, like many of its European rivals, has been crippled by the cost of investing in high-speed mobile phone licenses that allow it to offer internet and video services over cellular handsets. KPN also paid 9.1 billion for E-Plus Mobilfunk, Germany's No. 3 mobile phone company.

KPN has said it would sell assets to raise 5 billion to reduce its debts of about 22 billion. The Amsterdam-based company, which is 34.7 percent owned by the Dutch government, has the lowest credit rating among former government-controlled telecom companies.

Chairman Paul Smits wants to return the company to an 'A' debt rating status within three years. KPN is rated "Baa2" by Moody's Investors Service and "BBB+" with a negative outlook by Standard & Poor's.

The management was hoping to consult privately with large shareholders next week before committing publicly to the rights issue but was understood to have concluded that it represented their best hope of hitting debt reduction targets, paper said.

The Dutch government, which retains a 35 per cent holding, was likely to subscribe to the rights issue -- a move that could prompt criticism of unfair state support from competitors in Europe.

E-Plus acquisition dents profit

The telecom operator released its first quarter results on Friday in line with expectations. The company said earnings before interest, tax, depreciation and amortisation (EBITDA) – a measure of profitability of companies heavily  in debt – fell to 795 million from 815 million in the year earlier period.

"The decline in EBITDA in the first quarter is mainly caused by price cuts in Fixed Telephony, by costs connected to the implementation of KPN's cost reduction program, and by E-Plus's growth strategy in the rapidly growing German mobile market," KPN said.

KPN said sales rose 20.2 percent to 2.96 billion. "Once again, mobile activities, especially of E-Plus in Germany (which is consolidated since February 24 2000) and Internet traffic were the main drivers for this growth," the company said.

The company said it made a net loss of 539 million "partly on account of higher interest charges and the cost of acquisitions".

Analysts polled by Reuters had expected EBITDA to fall to 800 million and sales to rise to 3 billion from 2.5 billion in the first-quarter of 2000.

The Dutch company said it expects 2001 sales to rise by 10 percent-15 percent from 2000 levels EBITDA to increase by about 5 percent.

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