O2 Czech Falls as Loan to Majority Owner Stokes Dividend Concern

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O2 Czech Republic AS fell the most in five weeks after shareholders approved its majority owner’s request for a loan of about a third of the company’s market value, stoking speculation the move will reduce future dividends.

The stock of the largest Czech telecommunications operator slumped 5.3 percent to 232 koruna by 1:13 p.m. in Prague, valuing the company at 73.2 billion koruna ($3.3 billion). It is down 21 percent this year, having reached a 13-year low of 208 koruna last month, according to data compiled by Bloomberg.

Shareholders at the annual general meeting voted to borrow as much as 31.8 billion koruna from a syndicate of banks and re-lend as much as 24.8 billion koruna to PPF Arena 2 BV, O2 Czech said in a statement yesterday after the market closed. PPF Arena, a unit of billionaire Petr Kellner’s private-equity company PPF Group NV, owns 83 percent of O2 Czech.

“We consider the financial assistance negative for minority shareholders due to the potential of smaller future dividend payments,” Milan Vanicek, an analyst at J&T Banka AS in Prague, said in an e-mailed report to clients today.

Minority owners Setanta Asset Management Ltd. and Brandes Investment Partners LP sent a letter to the Czech utility’s supervisory board opposing the deal as too risky, Richard Doyle, a money manager at Setanta, said by e-mail on Nov. 26.

O2 Czech said on Oct. 14 PPF requested the loan to help it repay debt raised a year ago to buy a 66 percent stake in the company from Telefonica SA for $3.4 billion. The shares of the telecommunications company fell 29 percent in the month through Nov. 14 on speculation it may curb dividends and as UniCredit Bank and Telefonica sold their remaining stakes to Kellner.

Shrinking Profit

The operator paid a dividend of 18 koruna per share this year, down from 30 koruna last year and 40 koruna in 2012. O2 Czech’s net income will probably shrink to 4.8 billion koruna this year from 5.7 billion koruna last year, already the lowest in a decade, according to the average of seven analyst estimates in a Bloomberg survey.

Chief Executive Officer Tomas Kouril said on Nov. 12 the company can’t provide guidance on future dividends before analyzing the impact of the loan to PPF and a potential spinoff of its fixed infrastructure.