The state-owned Telekom Serbia is planning a 500 million Euro Eurobond issue which its CEO Vladimir Lucic said will allow it to react quickly to any new acquisition opportunities in the region.
Lucic told the pro-government Tanjug news agency that some of the money from the issue will be used to develop infrastructure and expand. He added that preprations for the issue will be completed in May. Reuters quoted him as saying that the issue will most likely be in Luxembourg or Frankfurt with the timing of the issue depending on the assessment of when the stock exchange will work best in the context of the crisis in Ukraine. He said that the company expects profits of 17 billion Dinars (1 Euro – 118 Dinars) this year, 30 percent higher than in 2021. Euronews reported Lucic as saying that demand is expected to exceed the 500 million Euro limit and adding that Telekom does not need more money.
Telekom Serbia is reported to have more than 11 million cable and mobile services users in Serbia, Bosnia-Herzegovina, Montenegro, Austria and North Macedonia. It is a majority shareholder in Bosnia’s second-largest telecom operator Telekom Srpske and controls Montenegrin mobile operator M:Tel.
Belgrade daily Danas said that a special meeting of Telekom shareholders has been called to discuss the Eurobond issue, the choice of stock exchange for the issue, its due date, price and interest. The daily said that the preparations include getting credit ratings from Moody and Standard & Poors. It quoted Lucic as saying Telekom Serbia will offer new mobile phone services in North Macedonia, Switzerland and Germany initially with a view to doing the same in the United States and Canada. According to Danas, Lucic did not disclose the size of the company debt at the end of 2021 which will be a key element in determining its credit ratings and the Eurobond yield.
Telekom Serbia launched an investment expansion in 2018 when it bought a number of small cable operators at prices that experts said were excessive, raising its debts to some 150 billion Dinars at the end of 2020. Telekom also pledged to pay 600 million Euro over the next six years for the TV rights to the Premier League with experts saying that the Eurobond issue could be used to cover some of that expense. Lucic said he expects the number of Telekom clients to rise from a million to 1.3 million in Serbia, Danas said.
It quoted him as saying that Telekom’s income in Serbia rose by 130 million Euro or 17 percent last year with its overall income at home and abroad rising by 9 percent to stand at 150 billion Dinars. The company’s financial reports for 2021 have not been published yet. Lucic said that profits totaled 13 billion Dinars (around 100 million Euro).
Momentum Securities broker Nenad Gujanicic said that the high Telekom debts can’t be reduced quickly, adding that it stands at between 140 and 150 billion Dinars if no large repayment was made last year. He warned of problems in maintaining stable financial structure given the expect rise in interest rates. “I believe that they want to issue long-term bonds to maintain financial stability despite investing in a 5G network but with that level of debt the interest rates will be very high,” he told Danas, adding that he sees no problem in Telekom getting the money it needs. He said the problem lies in the servicing of the debt with rising interest rates for a company that mainly operates locally and can’t raise prices because the population’s purchasing power is low. “Add to that the way the company is managed, the party oversight board, and things do not look good for shareholders or creditors and bond buyers which means the cost of the debt could be high,” Gujanicic said.
Kragujevac University economics Professor Veroljub Dugalic said that the issue is common practice globally but a precedent in Serbia. He said the issue of bonds is better than a loan but warned that the company has to be solvent at the due date. He expressed concern that the debt could be transferred to Serbian taxpayers if Telekom has problems and can’t cover the bonds.
Telekom Serbia issued corporate bonds in Dinars two years ago after the government said that possibility was available to companies at the start of the pandemic. Telekom’s corporate bonds were worth 200 million Euro with a five year due date and an interest rate of 3.97 percent. Those bonds were bought by banks with the National Bank of Serbia (NBS) buying part of them later which economy experts said was a way for the government to finance companies from its primary emmision.
Danas said that Telekom did not respond to its request for comments on the Eurobond issue.