Koninklijke KPN was punished in the credit default swap market last week after Standard & Poor's put the company's triple-B plus rating on credit watch. Five-year protection on the telecom company widened to 240 basis points/280bps on Wednesday from 160bps/200bps a week before. Traders said the market slowed after pricing on credit protection on the name went through 200bps.
KPN was put on credit watch because S&P estimates it will only raise EUR2 billion through the sale of assets, such as eircom and Vodafone shares, rather than the EUR5 billion the telecom company projects. This is because it is becoming increasing difficult to sell telecom assets, he added, "It is like pushing water uphill, it just gets harder and harder," saidChris Legge, managing director of corporate ratings at S&P in London.
Despite widespread speculation that KPN is planning a rights issue of up to EUR5 billion (USD4.3 billion)--a move that ordinarily would be positive for the company's credit outlook--spreads continued to widen, said traders. Press officers at the telecom company said no decision has been taken on a rights issue. Even though a rights issue would help reduce debt and could give the Dutch government a chance to increase its 30% stake in the company, this did nothing to calm the market. "Government ownership is not part of the rating of these companies...it is what it translates into that counts," S&P's Legge added.
Moody's Investors Service rates KPN Baa2.
