(Corrects to make clear that Weather Investments is majority-owned by Sawaris, rather than owned, in para 4)
LONDON, Aug 27 (Reuters) - Hellas Telecommunications II, parent of Greece’s Wind Hellas, said it had begun talks to seek support from shareholder Weather Investments as it expects to run short of cash and is considering restructuring alternatives.
“Hellas II has concluded that it is appropriate to immediately consider strategic alternatives in respect of its investment in the company and to its current capital structure,” Chief Executive Officer Emad Barsoum said on a phone call with investors on Thursday.
“This is a serious situation that requires a solution in the near term,” Barsoum said. “We have had extensive discussions on the situation, including with our shareholder.”
Weather Investments is an Italian holding company majority-owned by Egyptian tycoon Naguib Sawiris, with mobile, fixed, Internet and international communication operations in Algeria, Bangladesh, Egypt, Greece, Italy, Pakistan and Tunisia.
If Hellas II does restructure its debt, such a move could eventually lead to a credit default swap (CDS) restructuring event, said UniCredit (HVB) debt analyst Stephan Haber. That means auctions would be held to fix cash settlement of CDS.
Such an event would be the second in Europe's CDS market after Thomson SA TMS.PA to come under the complicated new "Small Bang" protocol for restructuring.
Hellas II said its available liquidity shrank to 31.9 million euros ($45.4 million) at the end of June and currently was a “small positive number” after it paid interest in July.
It is now working to rebuild cash, including cutting capital spending, to meet 67 million euros in coupon payments due Oct. 15, Chief Financial Officer George Rallis said.
The company, which provides both fixed-line and mobile services, also said it might fail to meet a debt covenant in its revolving credit facility in the third quarter.
SUSTAINABLE CAPITAL STRUCTURE
The group’s total debt amounted to 3.2 billion euros at end-July, or 8.2 times earnings before interest, taxes, depreciation and amortisation (EBITDA) of the last 12 months, and that ratio is expected to rise, Rallis said.
The company posted an 11.6 percent drop in second-quarter revenue to 276 million euros and a 16.9 percent drop in adjusted EBITDA to 82.1 million.
For the full year, Hellas II estimated a 13 to 15 percent drop in revenue, EBITDA of 320 million to 340 million euros and minimum necessary capital spending of 130 million to 140 million euros for the group.
Wind Hellas, Greece's third-largest mobile operator with a 22 percent market share, would need a much larger investment than that level to catch up with its competitors, Barsoum said. Greece's OTE OTEr.AT is the market leader in both the mobile and fixed-line businesses.
Barsoum outlined a plan to bring the company back to a stable financial situation by 2012.
“A critical ingredient for the success of this plan is a sustainable capital structure that allows for the necessary investment in our customer offering, our brand, the network as well as easing our working capital constraints,” he said.
Hellas II said it had retained Morgan Stanley to act as financial adviser and Ernst & Young to provide advice on its potential alternatives.
Earlier this month, it moved its headquarters to London thought executives did not explain the reasons for the move.
Haber said the move might be a step to bring a restructuring procedure under UK law, which would reduce legal uncertainty.
Five-year CDS on Hellas II widened to 5,364 basis points from 3,715 basis points, according to Markit data.
It ranks among the top 1,000 most-referenced CDS names globally, with contracts amounting to nearly $8 billion of gross notional value and more than $510 million of net notional value, according to data from the Depository Trust & Clearing Corp.
Hellas II was a constituent of Series 9 of the Markit iTraxx indexes but is not in the current on-the-run Series 11. (Editing by David Holmes) ($1=.7024 Euro)
Our Standards: The Thomson Reuters Trust Principles.