Details of KPN's much anticipated €3 billion (US$3.9 billion) rights issue have finally emerged, as the debt-laden Dutch operator seeks ways to prop up its balance sheet in the face of tough competition in its home mobile market and elsewhere.
The operator is issuing 2.84 billion new ordinary shares in the 2-for-1 rights issue at €1.06 per share, which The Wall Street Journal noted represented a 62 per cent discount to the closing share price ahead of the rights issue announcement. The exercise period runs to 15th May 2013.
Carlos Slim's América Móvil, which owns a 29.77 per cent stake in the Dutch operator, has committed to subscribing to the issue. Indeed, analysts noted that the discount practically makes it an imperative for shareholders to subscribe.
"The deep discount is basically forcing all shareholders who still own KPN shares to subscribe," Bloomberg quoted Corne Aben, a fund manager at Optimix as saying. "If you don't take part, you will face a huge dilution of your stake and lose quite a lot of money."
The rights issue forms part of KPN's efforts to strengthen its balance sheet and maintain its position in a highly competitive European mobile market. The company also recently decided to scrap planned dividends for 2013 and 2014. Reuters has estimated the company's outstanding debts at €14.4 billion, while The Wall Street Journal said the debt pile is around €12.5 billion.
The WSJ also warned that extra capital would not be enough on its own to resolve KPN's problems. Although it noted that net debt would fall to 2.2 times EBITDA from 2.8 times, the operator is planning to make a considerable investment in Germany, where it operates the E-Plus network, and also faces a new competitor, Tele2, on the Dutch mobile market.
KPN posts 12% drop in Q1 earnings, cancels dividend
KPN mulls rights issue as Telefónica eyes German tie-up
Vodafone Netherlands, KPN push job cuts to slash costs
KPN, Vodafone, T-Mobile and Tele2 bid €3.8B in Dutch LTE auction
Analysts: América Móvil may push KPN to invest more in networks
KPN CEO pushes for network sharing with O2 Germany
KPN cancels Belgian BASE sale over 'unsatisfactory' offers