An agreement on the issue is necessary for the completion of the legal integration of the fixed and mobile telephony companies of the group, it said.
“In order to complete the legal merger of the two fixed and mobile service companies a significant portion of the debt to OTE must be erased due to the losses of Telekom Romania Mobile Communications,” the Communications Ministry told OTE during the talks over the merger of the former Cosmote and Romtelecom, market sources close to the ministry told ZF.
This is the first time the government talks about this, considering it was usually the one to erase debt in case of privatizations.
The former Cosmote Romania, the third largest mobile telephony provider on the local market, has a total debt of EUR850 million, EUR600 million of which to OTE. OTE owns 70% in the former Cosmote, while the former Romtelecom owns 30%. On the other hand, OTE holds 54% in the former Romtelecom, while the Romanian government holds the remaining 46%.
The Communications Ministry brought up the issue of a haircut of Cosmote Romania debt to OTE, an extremely delicate topic for Athens, at a time when a step needs to be taken before completion of the legal merger of the two companies and that is a deal to ensure uniform shareholder structure for two.
The former Romtelecom should buy OTE’s 70% in the former Cosmote Romania at a symbolic price, but the problem that hinders the negotiation progress is that given the current debt of this company, its value would be negative.
“They’re discussing Romtelecom owning 100%, which means buying 70% for a symbolic price – say EUR1, but that means Cosmote’s value has to be zero, but is below that now,” another market source familiar with the talks told ZF.
Cosmote Romania could be valued at EUR700 million if applying a multiple of 8 as used in other deals in the telecom industry to the EBITDA in 2015, EUR87 million.
When discussing a haircut of Cosmote Romania’s debt with OTE, the Communications Ministry even said that in case the negotiations fell through it would have the agreement in 2013 re-discussed. The agreement reached that year allowed Cosmote and Romtelecom to integrate their operations and the Telekom Romania group to have the current management structure.
“In case no agreement (on a haircut i.e.) is reached, the operational integration agreed upon by former chief executive officer Nikolai Beckers and former Communications Minister Dan Nica in 2013 will have to be reconsidered,” the Ministry said to the representatives of OTE, market sources told ZF.
Communications Ministry officials did not return ZF’s calls for comment by press time.
The agreement in 2013 that allowed the operational integration to proceed was a step back for the Communications Ministry and a victory for OTE/Deutsche Telekom, because it cancelled the result of the negotiations conducted by the two parties in 2011. Back in 2011, Michael Tsamaz, chairman and CEO of OTE, agreed after a six-hour round of talks with the then Communications Minister Valerian Vreme and state secretary Marius Fecioru that the operational integration would only begin at the same time as the legal integration, upon agreement with the Romanian party.
Once Dan Nica and Nikolai Beckers reached an agreement in 2013 that allowed operational integration to proceed without settling the matter of the more complex legal integration process and of the valuation of the two companies in the group, the new CEO appointed a single management team and started unifying departments. In September 2014, the two companies dropped the Cosmote and Romtelecom names, switching to the Telekom brand of Deutsche Telekom, the majority shareholder of Greece’s OTE.
(English version by Loredana Fratila-Cristescu)