«Latest  ‹Forward   News item: 3594  Back›  Oldest» 

Maturing debt risk set to hit telecoms sector
United Kingdom Created: 12 Nov 2008
The telecoms sector faces the greatest refinancing needs of any non-financial corporate sector over the next three years, as a total of $2,100bn of European corporate debt is set to mature.

These companies face the combined difficulty of needing to refinance debt as banks want to lend less, the cost of funding has increased and the investor base has shrunk.

Some companies have been proactive - refinancing debt when opportunities arose - but conditions have recently been so tough that it has left many waiting.

European companies have refinanced less than US corporates, partly because they have historically relied more heavily on the bank market, said Eirik Winter, head of debt capital markets at Citigroup. "There are 20 to 30 corporates in the visible pipeline hoping to do bond deals by Christmas, but I think only a few will get done," said Mr Winter.

While nearly three-quarters of the debt coming due has been issued by banks and other financial institutions, the maturing debt risk is high for capital intensive sectors, such as telecoms and utilities, which have $121bn and $79bn due respectively between now and the end of 2011, according to Standard & Poor's.

Ninety per cent of the debt maturing is investment grade, which normally would make it easier to refinance, but now is a greater challenge "owing to the exceptional instability experienced in recent weeks, as well as investor pull back from even highly rated securities", said Diane Vazza, managing director at S&P.

S&P also highlights the soaring cost of capital, with corporates having to pay 10 times the spread levels on euro-denominated bank debt they were able to secure in August 2007.

The study is based on volume of debt the rating agency rates, but does not factor in funding that companies may have already done in advance of this debt maturing. Not all maturing debt will need to be refinanced.

Some $206bn of debt is coming due over the fourth quarter of 2008 alone - $181bn of this is financial company debt. A big advantage for financial debt will be the government guarantees put in place to back refinancings.

The market will see a significant increase in volumes of debt maturing in the coming year, the report said.

A large chunk of the debt due over the next few years is concentrated in 2009, with $800bn maturing in that year alone, fuelled principally by the financial sector. In 2010 and 2011, total maturities taper off at $633bn and $510bn respectively.

"Corporates cannot rely on loans and short term financing to the extent they have done for many years," said Mr Winter. "They generally have two main choices: reducing investment and delever or go to the bond markets."

Mr Winter said quite a few companies have been proactive in refinancing such as KPN and BT earlier in this year. France Telecom yesterday was set to price a £500m bond, according to a banker involved in the sale.

Including financial debt, Germany has the most bonds maturing between 2009 and 2011, with 40 per cent of the total share. Other countries with big exposures in descending order are Sweden, Netherlands, France, Italy, Spain, and the UK.

Together, these countries account for about 85% of the total financial exposure in Europe.
Click here to view the source article.
Source: The Financial Times, Anousha Sakoui, 11 Nov 2008

«Latest  ‹Forward   News item: 3594  Back›  Oldest»