Deutsche Telekom Greek Unit to Face Higher Costs in Euro Exit

Greece abandoning the euro would increase financing costs for Hellenic Telecommunications Organization SA and send the Deutsche Telekom AG unit’s bonds and stock lower, according to credit analysts at Moody’s Investors Service and Robeco Groep NV.

Prime Minister Antonis Samaras has warned that a vote on Jan. 25 in favor of rival Alexis Tsipras and his anti-austerity Syriza alliance would bring back the specter of a euro exit first raised five years ago. At 4.4 billion euros ($5.2 billion), OTE’s market capitalization is the biggest among locally-based non-financial companies on Greece’s ASE Index.

OTE’s bonds dropped for a second day, with its 700 million euros of 3.5 percent securities falling 1.4 cents on the euro to 91.5 cents, the lowest on record for the notes sold in July, data compiled by Bloomberg show. The shares declined 3.1 percent to 9.06 euros in Athens yesterday.

Here is what an exit would mean for OTE.

REPAYING DEBT USING A DEVALUING CURRENCY -- OTE would be obligated to repay its euro-denominated debt with revenue that will largely come from a weakening new currency, said Robeco’s Jankees Ruizeveld and Carlos Winzer at Moody’s. That would mean an effective increase in the company’s debt load. Management would have to respond by further slashing debt and issuing bonds in the new currency, according to Ruizeveld.

OTE has 2.74 billion euros in bonds and loans, all denominated in euros, according to the company.

RELIANCE ON GREEK OPERATIONS TO PARE DEBT: since the last round of speculation over a euro exit, OTE has sold assets in Serbia and Bulgaria and has become more reliant on its home market. Greece accounted for more than 75 percent of earnings in the 12 months through Sept. 30, up from 67 percent two years earlier, according to company presentations. Reliance on revenue in a weaker currency would aggravate the problem of servicing debt, the analysts said. OTE also has businesses in Romania and Albania.

TO BE SURE: Asset disposals have helped reduce OTE’s underlying net debt to 1.43 billion euros as of Sept. 30, compared with almost 3 billion euros two years earlier. That’s equivalent to about 1.2 times earnings before interest, taxes, depreciation and amortization (versus 1.8 times), according to data compiled by Bloomberg. OTE would be “much better equipped to weather such a storm,” Ruizeveld said. Management would have time to react to an exit because OTE doesn’t have any debt maturities until next year, Winzer said.

WOULD OWNER STEP IN? Deutsche Telekom owns 40 percent of OTE shares and controls the company through a shareholder agreement with the Greek government, which holds 10 percent. Deutsche Telekom would help OTE find financing if the unit can’t attract bond buyers or lenders by itself, Ruizeveld said.

Nico Goericke, a spokesman for Bonn-based Deutsche Telekom, said the company has no obligation to aid OTE, which is capable of financing itself. He declined to comment on a potential euro exit by Greece. OTE representatives didn’t immediately return calls seeking comment.