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Bezeq’s CFO Seeks to Keep Dividend Policy While Cutting Debt

May 30 (Bloomberg) -- Bezeq The Israeli Telecommunication Corp., the company with the highest dividend yield on the country’s benchmark index, plans to stick to its payout policy and reduce debt even as it faces growing competition.

“We’re maintaining our 100 percent of net earnings” dividend strategy, Chief Financial Officer David Mizrahi said in an interview at Bezeq headquarters in Tel Aviv yesterday. “We have enough free cash flow and we can use that to both deleverage beginning in 2014 and pay the dividend.” Bezeq has a dividend yield of 22 percent.

Bezeq is confronting increased competition in the fixed-line business as state-owned Israel Electric Corp. sets up a fiber network and the government works on guidelines to introduce a wholesale market, where bulk network capacity is sold to telecommunication providers who then sell to consumers. Bezeq’s shares, which gained 12 percent so far this year, dropped 39 percent in 2012 as Hot Telecommunication System Ltd. and Golan Telecom Ltd. entered the mobile-phone market. The shares rose 1.1 percent to 4.786 shekels at 2:50 p.m. in Tel Aviv.

“Bezeq shares get a lot of support from the generous dividend distribution, investors like this a lot,” Dov Rozenberg, an analyst at Clal Finance Batucha Brokerage Ltd. in Tel Aviv, said today by phone. “The question is whether in future Bezeq can maintain this generosity in a worsening competitive environment.”

The company, whose fixed-line, mobile, television and international-calls units currently operate as separate entities, has to pay 1.1 billion shekels of debt in 2013, Standard & Poor’s Maalot said in a report dated April 22. “Beginning next year, debt will go down,” Mizrahi said. “We have payments of around 1.5 billion shekels a year.”

Price Agreement

The entry of Hot and Golan in May last year spurred a price war between wireless companies, hurting results at Bezeq’s mobile unit. Pelephone Communications Ltd. reported a 29 percent slump in first-quarter profit to 153 million shekels as average revenue per user fell 11 percent.

“Prices will go up eventually, the timing is yet to be seen,” Mizrahi said. “We won’t see a fast recovery and we won’t see the numbers we used to see, but it will recover for sure.”

The company, under new Chief Executive Officer Stella Hendler, is preparing to merge its units once government regulation keeping them separate is lifted, Mizrahi said. The government has said it will allow Bezeq to combine units nine months after the wholesale market is in place. A merger of units will help Bezeq save costs.

“This is a big thing for us, to be able to work as any other telcommunication company in the world,” said Mizrahi. “Our biggest mission is to merge operations.”

Standing in the way of the goal are negotiations to lease its network to wireless providers Cellcom Ltd. and Partner Communications Co. and the sides haven’t been able to decide on the price.

“If we cannot reach an agreement the ministry will intervene and set the pricing,” said Mizrahi. “The regulator moves very slowly.”

Cellcom shares declined 1.7 percent to 32.22 shekels and Partner dropped 2.5 percent to 22.15 shekels, the lowest level since April 8.

To contact the reporter on this story: Shoshanna Solomon in Tel Aviv at ssolomon22@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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