Dutch Telecom Co. Blows Out After Govt. Stake Sale

The price of credit protection on Dutch telecom company Royal KPN jumped last week, after the government sold half its 16% stake. Five-year credit-default swap spreads on the name widened from 57 basis points to 80 bps when the sale was announced Wednesday morning. As DW went to press Thursday, however, spreads had pulled in to a bid offer of 65/69.

The widening was exacerbated by general sector nervousness connected to mergers and acquisitions and leveraged buyout risk, dealers said. The looming holiday quiet period means KPN will likely continue to pull in closer to 60 bps. "At this stage, you still want to have a small premium for any potential LBO headlines," noted one trader. "But I'm not going short crazy on KPM or even Telekom Austria." The Austrian company has also seen its credit protection price rise in the last two weeks, after announcing plans to extend its allocation for share buybacks and dividends.

Fitch Ratings has KPN at BBB plus with stable outlook and Moody's Investors Service rates it Baa1. Stuart Reid, analyst at Fitch, said the Dutch government's impact on KPN is largely discounted in the rating because of the small size of the stake. A trader agreed the rush to buy protection was triggered much more by telecom sector nerves than by the government's sale affecting its perceived credit quality.