By Serena Ruffoni
Hellenic Telecommunication Organization (HTO.AT), or OTE, today
announced its intention to issue a new five-year bond, using the
proceeds to buy back its old bonds maturing in 2013 and 2014, as
growing investor confidence that Europe is on the mend opens
financing opportunities for companies in the euro zone's most
crisis-hit countries.
The proceeds of the new bond, due to price Wednesday, will be
used to buy back the company's old bonds, now close to expiry date.
OTE has launched an offer to buy back its 5.00% bond maturing in
August 2013--of which 1.25 billion euros ($1.68 billion) is
outstanding--and its 7.25% bond due August 2014 with EUR500 million
outstanding, at a market price of respectively 100 and 102 of face
value
It is rare for a Greek company to finance itself in the bond
markets. Italian, Spanish, Irish and Portuguese companies have been
able to re-access the debt markets after their cost of borrowing
spiked to unsustainable levels for a large part of the last two
years. Increased confidence in Europe after the ECB said it would
support the euro and investors' demand for higher-yielding debt
also enabled Portuguese companies and banks, that have a credit
rating below investment grade, to successfully issue bonds last
Autumn.
Greek companies have largely been shunned by investors as their
country sank under the weight of its debts and plunged into a
severe recession.
But Deutsche Telekom (DTEGY) owns a 40% stake in OTE and the
heavy weight's backing substantially improves OTE's chances of
successfully issuing a bond in the international debt markets.
Investors have always believed the German telecom giant wouldn't
give up on its investment easily and would support the company
through hard times.
"There has always been an implied support of the company by
Deutsche Telekom," said Mark Chapman, an analyst at
CreditSights.
The support for OTE from its parent comes because it is a
performing company, despite being tied to its country's challenging
economic landscape.
According to its latest available third-quarter 2012 results,
the company slightly increased its earnings before interest, tax,
depreciation and amortization, or Ebitda, for the first nine months
last year despite revenues being hit by Greece's severe recession.
Cash flow generation has increased too, and the company has
diversified operations in Romania, Albania and Bulgaria. OTE also
executed harsh cost-cutting measures, spearheaded by Deutsche
Telekom. On Monday, the company announced 1,500 voluntary
redundancies.
OTE's old investors will be encouraged to subscribe to the new
bonds and those who do will be given priority for payouts under the
old bond tender.
"Many OTE investors are in the hedge fund community," said one
investor who used to own OTE bonds. "They will be happy to be paid
out on their old bond holdings but it remains to be seen if they
would want to commit themselves to the new one," he said.
This year, increasingly risk-indifferent investors have already
been on a bond-buying run in the hope of catching substantial
returns going down the credit rating scale. The European high-yield
market, home to many companies in the euro-zone's troubled
economies, has been particularly active with new borrowers looking
to exploit the favorable climate.
Analysts at CreditSights calculate that the yield on this new
bond could reach 7%-8%, providing a substantial return. The average
yield an investor can get in the iBoxx Euro High Yield index is
5.4%, according to index-owner Markit.
OTE is not the first Greek company to test the bond markets, but
it is the first truly domestic one to do it on a large scale.
According to its results, almost 65% of its revenues and more than
65% of its Ebitda are generated in Greece.
Late last year, dairy company FAGE transferred its headquarters
to Luxembourg from Greece and executed a $250 million increase to
its bond that matures in 2015. Although international in scope with
significant operations in the U.S., it needed to reassure investors
its fate was separate from that of its former home country. Greek
cement maker Titan also managed to issue a small EUR200 million
bond early this year mainly by exchanging old bonds for new
ones.
According to the International Monetary Fund, one of Greece's
main creditors alongside the European Union, Greece's economy is
expected to shrink 4.2% this year, projected as the sixth year of
consecutive recession.
Ratings for OTE are Caa1 by Moody's Investors Service Inc. and
B- by Standard & Poor's.
BNP Paribas, Deutsche Bank and HSBC are lead managers on the
projected bond issue.
Write to Serena Ruffoni at serena.ruffoni@dowjones.com
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