Debts smother KPN

September 3, 2001 Posted: 0912 GMT

LONDON (CNN) -- Cash-strapped Dutch telecom company Royal KPN fell to a big second-quarter loss and warned investors to expect a full-year loss too.

The Netherlands' biggest phone operator is struggling to cut debts that have risen to 22.8 billion ($20.7 billion) through takeovers and the expense of buying permits to offer third-generation (3G) wireless services.

The net second-quarter loss ballooned to 1.04 billion from 19 million a year earlier. Financing costs rose after KPN's purchase of the majority of German wireless operator E-Plus, spending on 3G licenses and other acquisition-related charges.

KPN shares fell 9 percent to 2.84 in Amsterdam on Monday morning, earlier touching a record low of 2.67, following a near 22 percent drop on Friday.

The company admitted it is having difficulty paying down debt through asset sales. Its target was initially to raise 5 billion this year, but it has had to warn that the timing of sales may slip back because of the deteriorating business climate.

KPN said on Monday that it may also fail to raise the hoped-for amount, in light of a further worsening of conditions since its previous warning. It said it would not pay a half-year dividend.

The company on Friday said it had called off merger talks with Belgacom, the state-controlled Belgian telecom company, because the two sides had failed to agree on KPN's valuation.

The Dutch company is far larger than Belgacom in terms of sales but was expected to come away with a share of less than half in any merged company because of the scale of its debts.

KPN said last week its finances are sufficient to keep it running until the middle of 2002.

In the second quarter, earnings before interest, tax, depreciation and amortisation (EBITDA) rose 3 percent to 929 million, beating expectations of analysts surveyed by reuters, who had a consensus forecast of 885 million.

Sales increased 17.5 percent to 3.17 billion.

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