Avi Hochman, chief financial officer
What have been the high points in the markets for Netia this year?
There has been a successful round of financing. In the equity markets, we raised $111m through the Polish offering, together with an ADS issue and purchase of shares by Telia, which has increased its stake in Netia to 48.4%. The Polish offering was twice oversubscribed and was one of Poland's largest private, non-privatisation issues. Strong investor interest allowed us to increase the 10 year bond issue from Eu150m.
This year's bond issue was priced with a 13.75% coupon - were you happy with that?
It was a good transaction given market circumstances. The 10 year issue we did last year was priced with a 13.5% coupon, and that was the reference point for the deal in June. We had no complaints about the 13.75% coupon, as markets were much tougher.
Who do you see as your comparables?
Our strategy is very similar to Colt Telecom's, but they are operating in western European markets, so it is difficult to make too close a comparison.
Does Netia still pay a premium because it is a Polish issuer?
If you take our pricing and compare it with Colt Telecom's, I would say so.
What were the new elements of the story that you took to investors this year? Your ratings went up from B3/B to B2/B+, so that must have put you in a good position.
Yes, the main element was the improvement in our ratings, which in turn partly reflected the injection of more equity into the company by Telia.
Also, we had taken specific promises to investors and we have delivered on those promises.
What were those promises?
The number of connected lines, the average revenue per line, and becoming Ebitda positive in the fourth quarter of 1999, which we have repeated in the first and second quarters of 2000.
In fact, there was a 167% increase in Ebitda in the first quarter of this year over fourth quarter 1999. Ebitda for the first half 2000 improved to Z13.1m (US$3m), from a negative Z16m for the first half of 1999.
Netia has made big strides over the past year.
Yes, today we have almost a full portfolio of telecoms services, so we have been building the company and the story of the company.
Along with providing local call services we now have a domestic long distance licence and a licence for data and IP services.
This year, we have also been awarded a local service licence for Warsaw, which was important as we had licences for all the main metropolitan centres except the Warsaw licence.
The only missing element now is mobile communications exposure, but we are bidding for one of five 3G licences, with the tender due to finish at the end of November.
It is going to cost a minimum of Eu750m for a licence - do you have funding in place?
Not yet - we are building the business plan right now. But we have promised that we will not use the proceeds from our last bond issue for UMTS.
How would you finance a UMTS licence?
Maybe through bank debt or the bond markets. It would most probably be a combination of equity linked and bond issuance.
How far out are you funded with the $300m you have issued this year?
Excluding financing relating to a 3G licence, we are fully funded until 2002. Proceeds from the new equity and debt will go towards completing the build-out of the local access network, which should be finished in 2002, and completion of the national fibre-optic network, which should be finished by the end of this year.
At some stage there will be consolidation in the high yield telecoms sector in Europe. What role do you see Netia playing?
We are the only candidate that can lead the consolidation in Poland, but consolidation will only bring shareholder value if the question of licence fees is addressed.
As the largest alternative telecoms provider in Poland, this is not a problem for Netia, but for smaller companies, licence fees are a huge burden.
But if that problem can be resolved, the gate for consolidation will be open.
How might the problem of licence fees be resolved?
It will come down to discussions between the government and the operators, but perhaps the fees could be reduced or the licences could be split into longer periods.
Does Telia have ambitions beyond the 48.4% stake it holds in Netia?
Telia has declared that it is looking at Netia as a strategic investment and that it wants to hold at least 30% of the company.
But it is unlikely they would want to increase their stake beyond 50% because under Polish law that would require them to bid for the full 100%.
As far as I am aware, that is not part of their agenda. *