O2 Czech Republic approves CZK24.8bn loan to parent PPF

By bne IntelliNews December 18, 2014

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Shareholders in O2 Czech Republic approved a controversial CZK24.8bn (€900mn) loan to its new parent PPF on December 17, despite angry protests from minority shareholders in the telecom.

Financial group PPF, owned by the Czech Republic's richest man, Peter Kellner,  requested the loan from the low-leveraged O2 in October. It plans to use it to pay down part of the debt it took on to fund the acquisition of the telecom earlier this year. 

The move has hit O2's share price, with the company's dividends expected to suffer as a result of the loan. O2 shares dropped a further 1% by the close on December 17 to leave them 17% below a buyout offer price launched in May, reported Reuters. Small shareholders reportedly shouted "Lies" and "Shame on you" at the meeting.

CEO Tomas Budnik claimed he expects the company to get better financial conditions, including lower costs, thanks to the fact that it is now part of a “strong PPF group”. 

O2 said it will raise the requested funds via a six-year syndicated loan of up to CZK31.8bn. The company will use the remaining sum for consolidation of existing debts and business activities, it said in a statement on its website following the shareholders’ meeting.

PPF took a €2.3bn loan to buy a 65.9% stake in O2 from Spain's Telefonica for €2.5bn in January. It has since boosted its stake to over 83% through share buybacks.

That moves it closer to the 90% threshold that would allow a squeeze out of remaining shareholders. Analysts predicted that O2 would soon be delisted when the original deal went through, noting PPF is not in the habit of operating under shareholder scrutiny.

Regret

Many minority shareholders, who had got used to high dividend payments under Telefonica,  may now be regretting they did not take up earlier offers. 

The dividend for 2013 was set at CZK18 a share in June, down from CZK30 the year before. Budnik declined to comment when asked about future dividends in an interview in November, saying the company has no formal policy.

Additional interest in the stock had also been driven by the fact that O2 had very low debt, opening the way to speculation in recent years that the telecommunications company could borrow to improve its capital structure to the benefit of all. "But now it seems that only the majority shareholder will benefit from increasing O2’s indebtedness," Josef Nemy at Komercni banka told bne Intellinews in November. 

To add insult to injury for minority shareholders, O2 has said that interest will only be paid at the maturity of the seven-year facility. In other words, PPF will get an additional boost in its fight against the problems at its Russian business Home Credit thanks to zero cash interest costs.

There is "no reason to hold shares" in the Czech Republic's largest telecommunications company O2, analysts at Erste Bank stated on November 4. 

 
 

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