February 20, 2013 11:04 am

Slim backs KPN €4bn rights issue

Mexican billionaire Carlos Slim has backed KPN’s plan to raise €4bn through capital markets, clearing the way for a much-needed rights issue by the Dutch telecom group.

Mr Slim’s América Móvil, which owns a 29.8 per cent stake in KPN, said it has agreed to support the capital raising on condition that América Móvil have a say in the appointment of two new members to the board.

This will put to rest rumours of a takeover of KPN by Mr Slim.

Under the agreement KPN will execute a €3bn rights issue and issue hybrid bonds making up the additional €1bn. The agreement is subject to shareholder vote on April 10.

América Móvil’s support came as a surprise to some analysts and bankers who expected Mr Slim to make more demands from KPN’s management.

The rights issue, originally earmarked for €4bn, prompted speculation that Mr Slim would consider buying the company or seek to uproot senior management.

“Any investor when faced with a company’s decision to issue €4bn when it has a market capitalisation of less than €5bn will ask: is this management credible?,” one person close to the deal said.

“They [AMX] certainly weren’t handled in the best way in terms of getting information,” the person said, adding there was still tension between the two companies over KPN’s failure to inform América Móvil ahead of its decision to seek a rights issue.

The move will dilute Mr Slim’s stake in KPN. He has already lost €1.7bn since he battled with KPN management last year to acquire a 27.5 per cent stake in the company.

According to its fourth-quarter results last week, América Móvil increased its stake in KPN from 27.7 per cent to 29.8 per cent over the last quarter. In order to maintain this stake, América Móvil will have to invest €894m.

KPN announced the rights issue alongside disappointing 2012 results on February 5. Eelco Blok, KPN chief executive, said KPN needed to raise capital in order to deal with “rising debt levels combined with increased commercial investments.”

It will also help KPN avert a credit rating downgrade. “It would have been clearly more detrimental to the KPN if they didn’t raise capital because they would have been downgraded to junk,” said Frederic Boulan, analyst at Nomura.

Analysts at Bernstein took a more pessimistic view, however.

“With little guidance given for the years ahead (aside from a commitment to spend €7bn in capex) KPN looks like a value trap,” analysts wrote.

“AMX may have the ability to wait it out for three to five years, and hope that a longer term macro economic recovery helps them recoup some of the €1.7bn they have lost on their €3.1bn investment in KPN,” they added.

KPN’s shares fell 9.7 per cent to €2.92 on Wednesday.

KPN has entered into a standby underwriting agreement with Deutsche Bank, Goldman Sachs and JP Morgan.

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