News From Telecom World

Telenor sacrifices dividend to fund Unitech deal

Posted on: January 28, 2009

Telenor, the largest Nordic telecoms group, scrapped its dividend after bowing to shareholder pressure and withdrawing plans to fund its $1bn investment in Unitech Wireless, the fledgling Indian mobile operator, with a rights issue.

“We are taking into consideration the feedback we have received,” Trond Westlie, chief financial officer, told the Financial Times. “The cut in dividend over a two-year period [was regarded as] definitely more preferable.”

Telenor’s shares – which lost two-thirds of their value last year – fell slightly on the news, closing less than 1 per cent lower at NKr46.15.

Telenor’s shares slumped by a quarter in October after it announced a Nkr12bn ($1.7bn) rights issue to part-finance its strategic investment in the Indian market, the world’s fastest growing market in terms of subscribers. The transaction is expected to close later this quarter.

Investors expressed sceptism of the business case for starting an expensive greenfield operation in a huge emerging market where several larger rival operators, including Vodafone, are already established.

Telenor estimates that its Indian mobile operation, in which it will hold a 60 per cent stake, will not start making an operating profit (before asset writedowns) until 2012 and turn cash-positive only two years later.

Shareholders also feared a rights issue would greatly dilute their holdings because investors have turned their back on share issues in the current climate and Telenor’s shares are trading at low valuations.

Yesterday, Telenor announced it had arranged an Nkr8bn three-year loan from a banking consortium to finance the transaction.

It said it would withhold the dividend for the current financial year and indicated it was likely to do the same next year.

Analysts said this year’s dividend had been expected to be about Nkr6bn.

Telenor, which had Nkr39bn in net debt at the end of the third quarter, had originally rejected debt finance because of the potential impact on its cash flow and ratings.

In October, it forecast that the Unitech investment would dilute operating cash flow by 90 per cent this year and 40 per cent in 2010.

Mr Westlie said that cancelling the dividends would alleviate the liquidity constraints and the rating concerns.

“This will get us a rating level that we feel is comfortable to do the necessary refinancing in the years to come,” he said.

Telenor has Nkr9bn of debt maturing this year, although it has two back-up facilities totalling €2.5bn.

Ratings agency Fitch yesterday said Telenor’s announcement did not affect its BBB+ rating, which remains on negative outlook.

“Fitch remains concerned about the strategic rationale, overall cost burden and long-term profitability prospects of this investment,” the agency said.

“Further, the economic slowdown and growing currency devaluation risk within the company’s emerging markets are also putting pressure on the ratings.”



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