Deutsche Telekom slashes dividend by 40%

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Deutsche Telekom, the German telecoms giant, caught the market off guard yesterday by slashing its dividend while admitting it would take longer than planned to cut debt.

Furthermore, it said the flotation of its T-Mobile mobile phone operation, which owns the One2One brand in the UK, would no longer take place in the first half of this year thanks to tough market conditions.

Shares in Deutsche Telekom fell 2 per cent as the market feared the company's plan to cut capital expenditure as well as its dividend would not be enough to avoid a downgrade to its credit rating.

"There is now a danger that the group's rating could be downgraded, which would lead to an additional interest charge in the triple-digit millions," said Stefan Diehl, an analyst at WestLB Panmure.

Deutsche Telekom, which has about €62bn (£38bn) of debt, yesterday delayed its €50bn debt goal by one year to the end of 2003. It also proposed cutting its 2001 dividend by 40 per cent to €0.37 a share.

Ron Sommer, the company's chief executive, hinted he would not be surprised to see the ratings agencies downgrade the company's rating.

"If you go by the book, a one-notch downgrade could be explained," he said. However, he believed a downgrade would be unjustified.

Analysts, who were surprised by Deutsche Telekom's decision to cut its dividend, had suspected the company would not meet its debt target after the planned €5.5bn sale of its cable assets was blocked by regulators last month.

The company had been hoping to cut debt through selling those cable assets to Liberty Media as well as by floating its T-Mobile division, a move expected to raise it some €10bn.

Karl-Gerhard Eick, the finance director, said the company's debt would peak at "just under" €67bn in the first quarter of the current year.