* KPN's debt ratio above target range since June
* Reviewing 2015 strategy, decisions in coming months -CEO
* Considers dividend cut, asset sales, rights issue -CEO
* America Mobil supports KPN investment strategy
By Leila Abboud
BARCELONA, Nov 14 Dutch telecoms group KPN
may accept a lower credit rating if that meant it could
continue to invest in its networks in the Netherlands, Belgium
Speaking at the Morgan Stanley TMT conference in Barcelona,
chief executive Eelco Blok also said on Wednesday KPN was
reviewing its strategy through 2015 to see how to balance its
need to cut debt with its goal of strengthening its operations.
"We are finalising the business plan through 2015 and in the
coming months will make decisions on financial framework, he
said, adding KPN had to improve its key leverage ratio.
As part of the review, KPN is studying scenarios involving a
dividend cut, asset sales, convertible or hybrid bonds, its
credit rating, and, as a very last option, a capital increase,
"One of the outcomes of the process is that, on a temporary
basis, we would accept a lower rating to be able to continue to
invest," Blok said.
The comment was a departure from the position KPN laid out
at third-quarter results on Oct. 23 that it was committed to
keeping its credit ratings.
It could also be seen as a sign of the growing influence of
new shareholder Carlos Slim's America Movil, which
owns 27.7 percent of KPN.
Blok said the companies were working closely on what he
called significant synergies in procurement, leading the teams
involved to speak every week, while he spoke to America Movil a
few times a month.
"Their view is fairly clear. They support our investment
strategy. They want us to keep investing to strengthen the
Netherlands, while pursuing growth opportunities in Germany and
Blok said America Movil understood the financial constraints
KPN was struggling to overcome.
KPN breached its debt target for net debt to EBITDA (core
profit) to remain at a ratio of 2.0-2.5 in the second quarter,
caused by falling profit in its Dutch mobile business.
The ratio rose to 2.7 in the third quarter, and may come
under further pressure because of an ongoing mobile frequency
auction in the Netherlands and a difficult economic environment.
KPN is rated Baa2 with a negative outlook and BBB with a
stable outlook by Moody's and Standard & Poor's respectively.
Both are investment grade ratings, allowing most funds to invest
in the group's debt.
Under pressure to cut debt, KPN slashed its dividend payout
to 0.35 euro in July from the 0.90 euro promised earlier for
2012. Analysts have predicted KPN will cut its dividend again
Along with Telekom Austria, in which Slim has also
invested, KPN shares have been the worst performing in the
European telecom sector this year. Its shares are down 50
percent compared with a 5 percent decline in a European telecom
KPN has been struggling with lower profit and sales in the
past several quarters in its Dutch business, posting an 11
percent drop in mobile revenue and facing intense competition
from cable operators in broadband.
Core profit, adjusted for one-off restructuring costs, fell
12 percent in the third quarter.
Even its German business, usually its healthiest, suffered
from greater competition in the third quarter.
"Market circumstances have become more challenging than we
thought last year," said Blok.
The situation may intensify early next year because two new
players are bidding on mobile spectrum in an ongoing auction in
the Netherlands. Analysts are expecting bids from local virtual
mobile operator Tele2 and a possible joint bid from
cable operators Liberty's UPC and Ziggo.
"There is a high probability that there will be a new
entrant at end of the auction process," said Blok.
"We are preparing ourselves for this situation, including
quadruple-play offers, targeting churn in mobile customer base."