Colt Telecom moved to restructure its finances yesterday in an attempt to pay off debts in the midst of what it admits is a savagely competitive trading environment.
The fixed-line telecoms group aims to raise £300m in equity to pay off bonds that are due to be redeemed in the next three years.
The deal should enable it to slash debts to less than £100m, a move that has the backing of its majority shareholder, Fidelity. Colt made nearly £50m in profits last year, up 0.5 per cent, on sales of £310m, roughly in line with what the market was expecting.
Shares in the group dipped 4.5p to 60.5p after the results were announced, leaving Colt valued at £907m.
Analysts welcomed the scheme to strengthen the balance sheet. Dan Gardiner, at Bridgewell, the boutique investment bank, said in a note to clients: "We believe this initiative is broadly sensible.
"The decision to replace debt with equity is an admission that its current structure [net debt of £270m] is not really appropriate for a company that has only recently turned cash-flow positive."
Bridgewell rates the shares as a sell, arguing that 42p is a fairer value for Colt shares. Morgan Stanley differed, upping the price target to 70p from 65p.
Colt also revealed an "exceptional impairment" charge of £247m to reflect "the reality of doing business in the telecoms sector"|.
The chief executive, Jean-Yves Charlier, described the trend as "steady but upward".
"We believe we can continue, if not accelerate, that trend overall," he added.
Fidelity holds 59 per cent of the equity, a stake that could rise to 70 per cent if it is forced to buy all of the shares made available in the new offering. The chairman, Barry Bateman, insistedlast year was "better than the results show", while admitting the company had been slow to introduce new products.
Colt has doubled the size of its workforce in India to 545 in the past year.Reuse content