Standard & Poor’s Ratings Services said that its ratings and outlook on Hellenic Telecommunications Organization S.A. (OTE; BBB+/Negative/A-2) are unaffected by the increasingly vocal role being taken by Greek investment holding company Marfin Investment Group Holdings S.A. (MIG; BB/Negative/B) as a shareholder of the company.
“Despite the significant 18.46% stake that MIG has built up in OTE’s share capital and its increasing activism against recent decisions adopted by OTE’s management, we take comfort from the Greek state’s ownership in OTE and its stated support for management’s restructuring and development plans,” said Standard & Poor’s credit analyst Leandro de Torres Zabala.
Further comfort comes from the Greek government’s approval on Dec. 7, 2007, of legislation–with immediate effect–limiting a private investor’s shareholding in a strategic state enterprise to 20%. Authorization from the finance ministry’s privatization committee will be needed to exceed the 20% threshold. The Greek state currently appoints OTE’s management team and has medium-term plans to decrease its stake in the company, but has stated that it will only sell to a strategic partner among Europe’s large telecoms operators.
MIG has been increasing its stake in OTE since August 2007, and, with 18.46% as of Dec. 7, 2007, is now the group’s second-largest shareholder, after the Greek state with 28.03%. MIG plans to acquire up to 20% in OTE. Last week, it requested three seats on OTE’s board of directors, including the position of deputy chairman. In addition, on Dec. 5, 2007, MIG requested that the board convene an Extraordinary General Meeting to provide information on the reasonableness of the buyout of Cosmote’s minorities, the EUR2.7 billion short-term bridge loan to finance the buyout, the recent disposal of InfOTE, and other issues of transparency and corporate governance.
MIG has a short operational track record as a stand-alone entity, but we expect it to run a leveraged balance sheet and to invest in leveraged companies. MIG’s largest shareholder is Dubai Financial, a member of the Gulf state’s investment group.
S&P will closely monitor developments in the current situation, focusing particularly on any actions by MIG and the Greek state, and their potential impact on OTE’s financial plans and credit standing. Importantly, S&P’s ratings are based on expectations that MIG’s current activism will not affect the successful refinancing of the EUR2.7 billion bridge facility with long-term debt in early 2008; the facility has a one-year maturity with the possibility of a three-month extension. The ratings on OTE also assume a conservative financial policy, including leverage reduction (to which the recently announced disposal of InfOTE will make a valuable contribution).
OTE had consolidated cash and equivalents of about EUR1,572 million at Sept. 30, 2007–of which about EUR722 million at the parent company level–as well as an unused EUR350 million revolving credit facility that matures in September 2011. In addition, OTE will soon receive the proceeds from the sale of InfOTE for EUR300 million, with a positive after-tax effect of EUR230 million. These funding sources amply cover debt maturities of EUR12 million in 2007 and EUR83 million in 2008.
