Tech

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Patrick Drahi, the telecoms billionaire whose debt-fueled expansion spree is running out of steam, is finding it hard to break free of a downward markets spiral.

A full-blown bear attack is still ongoing after last month's profit warning from Altice SA, the Drahi holding company. Hedge funds have piled up negative bets on a stock that's fallen 56 percent since the end of October. Pressure to cut the 50 billion-euro ($59 billion) debt is rising. Bonds have sold off and the cost of insuring against default has spiked. Lending bankers at Goldman Sachs Group Inc. even looked to cut some of their exposure at one point, according to the FT, which can be interpreted either as good risk management or loss of faith in a key client.

Spiral of Gloom
Altice shares keep falling despite a change of tune, and asset sales, from Patrick Drahi
Source: Bloomberg

Despite all of this, Drahi still hasn't been forced out of his comfort zone.

While the billionaire isn't exactly doing nothing to ease the pressure, he's hardly caving in. His executives promise a "back to basics" push to curb spending and leverage, a new direction for a company that's been linked to a bid for John Malone-backed Charter Communications Inc. (enterprise value: $168.5 billion).

Paris, We Have A Problem
Forward 2-yr EBITDA forecast changes show Altice as the outlier among French telcos
Source: Bloomberg

But actual change has been pretty meager. There was the agreement to sell some Swiss operations valued at a little more than $200 million, which is like chipping away at a glacier with a fork. Altice's towers or its Dominican Republic unit could fetch more, but these deals are theoretical at this point. Selling a core business would ease more of the debt fears, but that would be a painful climbdown.

Signals from the empire suggest there's no need for anything drastic or panicked. The company has cash in the bank, a positive outlook for free cash flow, and no major refinancing until 2022. Its founder owns most of the shares. Sell-side analysts suggest the stock should be double where it is today.

So it's tempting to ride out the storm, while drip-feeding anxious investors some minor disposals. Volatile markets sometimes take care of themselves. Altice shares bounced a bit this week after a record low on Monday, suggesting stop-loss orders perhaps being triggered.

Volatile Trade
Altice shares' bounce-back after hitting record lows suggests automated orders kicking in
Source: Bloomberg
Intraday times are displayed in ET.

The risk with such a strategy is that it leaves Altice ill-prepared for an exogenous shock or sudden loss of confidence. Altice was the worst bond performer among euro high-yield peers on Monday, weighed down by the FT's Goldman report. Again, there may be natural reasons for the bank's deliberations. S&P Global Ratings cut its outlook on Altice to negative from stable in November, which may have triggered automatic changes to its risk profile. But any selling pressure on Altice debt only makes it harder to pacify markets.

This standoff between a patient tycoon and impatient investors could go on a while. The optimistic view is that Altice has time to restructure its French operations, paring back content ambitions while rolling out its network, all while profiting from U.S. growth. But attempts to get France motoring have dragged on a couple of years now. Without a turnaround, or more asset sales, Drahi won't always have the luxury of sitting back.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net