Sunday 18 March 2018

Eircom to pay down debt, rather than invest following IPO

AN EYE TO FLOAT: Herb Hribar, chief executive of Eircom
AN EYE TO FLOAT: Herb Hribar, chief executive of Eircom
John Mulligan

John Mulligan

Using €1bn in stock market flotation proceeds to reduce its €2.3bn debt pile would create a ‘virtuous cycle’ that would enable Eircom to keep pace with infrastructure spending requirements, sources have claimed.

Third float may see Eircom worth up to €2.6bn

Eircom has been eyeing its third stock market flotation, having emerged in 2012 from what was Ireland’s biggest ever examinership.

It had gone to the wall with €4bn in debt. It exited the examinership with 40pc less debt and new owners. US private equity giant Blackstone owns about 25pc of the company. Eircom has had six different owners since 1999.

While Eircom has spent the past couple of months fleshing out a possible return to the stock market, it has also been sounding out potential private equity buyers.

It emerged last week that the company has approached private equity giants Apax, CVC Capital Partners and KKR to see if they’d be interested in forming a consortium to buy Eircom.

If a stock market flotation is pursued, Merrion Stockbrokers reckons Eircom would be valued at about €2.6bn.

It’s expected that Eircom, which is headed by chief executive Herb Hribar, would use the vast bulk its initial public offer (IPO) proceeds to cut its debt, rather than earmarking any of it for additional infrastructure development.

That has raised concerns that the company could again suffer from the type of under investment that was the hallmark of its existence in the last decade.

But sources have suggested that using IPO proceeds to reduce debt will have a more beneficial long-term effect on the business, helping it to create a “virtuous cycle” that will enhance its investment capacity. In the past couple of years, the company has spent north of €100m rolling out its new fibre broadband network.

Reducing the debt pile would reduce interest payments and improve Eircom’s credit rating. That would make it cheaper for Eircom to refinance remaining debt in the future. Coupled with cashflow, it’s reckoned it would be in a position to keep ploughing money into its network.

Earlier this year, Eircom pushed out the maturity of its debt to 2019.

Its interest bill in the 12 months to the end of June was about €85m. Cutting its debt by €1bn would probably knock roughly €40m from the annual interest payments.

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