UPDATE 2-KPN sets out 4 bln-euro cash call to solve debt fix
* Q4 net loss 160 mln euros vs 357 mln profit expected
* Shares at 11-year lows
* Expects Dutch market to stabilise towards 2013
* Sees falling margins in Germany (Adds CEO comments)
By Robert-Jan Bartunek
BRUSSELS, Feb 5 (Reuters) - Dutch telecoms group KPN set out plans for a 4 billion-euro rights issue on Tuesday, one of many debt-laden European firms expected to capitalise on surging equity markets in an attempt to avoid credit rating downgrades.
KPN, in which Mexican billionaire Carlos Slim's America Movil took a near 28 percent stake in 2012, has along with other big telecoms groups seen earnings dwindle in competitive markets and had to pay more than expected for a fourth generation mobile licence.
KPN is currently ranked one notch above the lowest investment grade rating by Moody's and Standard & Poor's, which both have a negative outlook on KPN's debt. The group said it was committed to retaining an investment grade rating, which is required for many pension and investment funds to buy its debt.
However analysts said the company's opaque outlook was unlikely to entice shareholders to take up the offer.
KPN gave no detailed outlook for the forthcoming financial year, saying only the Netherlands, where core profit declined by 10 percent in the fourth quarter under stiff mobile competition, would stabilise towards 2014.
It also warned that margins could fall in coming quarters as competition ramps up in Germany, where KPN's E-Plus brand is in third place with 23.4 million customers behind Deutsche Telekom and Vodafone.
KPN did not comment on whether it had received assurances of support from its biggest shareholder Mexico's America Movil , which due to the normal low attendance at shareholder meetings is likely to have a de facto veto.
"We want and hope for their support. We have had, as with other shareholders, discussions about where we are with the company but it's up to them to vote at the EGM," Chief Executive Eelco Blok told a conference call.
KPN will hold an extraordinary general meeting (EGM) on March 19.
"It is traditional when one asks for money from investors to give some inkling what they might get in return. KPN appears not to have troubled itself with those details," Bernstein analyst Robin Bienenstock wrote in a note to clients.
A Netherlands-based spokeswoman for America Movil gave no immediate comment.
America Movil is carrying a huge paper loss on its investment in KPN made in June of last year at 8.00 euros per share. If it doesn't take part in the capital increase, it would see its stake in KPN, and any influence it holds over the group, diluted.
KPN's shares fell to 11-year lows after the announcement, declining as much as 25 percent. At 1030 GMT, they were 23.1 percent weaker at 3.152 euros, making them by far the weakest in the FTSEurofirst 300 index of leading European stocks.
Nick Brown, analyst at Espirito Santo, said America Movil was likely taking a wait and see approach to the share hike.
"I believe KPN will go into a period of consulting with their shareholders about the best way to raise the capital," said Brown. "So it might be that America Movil is waiting to see the outcome of discussion with other shareholders."
Global share markets have been climbing since the second half of 2012, giving companies the chance to repair their balance sheets.
Steelmaker Arcelor Mittal raised $4 billion selling shares and convertible bonds in January to help avoid slipping further into junk territory.
The same month, Telekom Austria also partly owned by America Movil, issued 600 million euros of hybrid bonds to cut its debt.
KPN said on Tuesday its net debt to core profit ratio stood at 3.0 at the end of the fourth quarter. The rights issue would reduce this ratio by about 0.9 points, making the debt level fall within its own target of 2.0-2.5.
It has also already cut its dividend for 2013 to 0.03 euros per share from previous guidance of 0.35 euros after it had to spend an above-forecast 1.35 billion euros on a mobile frequency auction in the Netherlands in December.
Though plans to sell entire units in Belgium and Germany were shelved in 2012, KPN has already made some disposals, most notably its Dutch and German mobile phone towers.
KPN said Goldman Sachs and JP Morgan were underwriting the rights issue, while Rothschild and ABN AMRO were acting as advisers.
It also said that it could consider raising the 4 billion euros by other means, such as equity linked instruments.
Overall, the group posted a net loss of 160 million euros in the fourth quarter, while analysts polled by Reuters had expected a net profit of 357 million euros.
($1 = 0.7376 euros) (Editing by Sophie Walker)