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18 September 2019 by jbchevrel

Telenor ASA (TELNO) is an international TMT (~70% revenue is from mobile operations) present in 13 European/Asian markets but the dominant historic player in Norway (formerly ‘Telegrafverket’). TELNO came to the bond market (€1.5b debt across 3 bonds: 4y 8y 12y €500m each) for the 2nd time in 4 months (they had sold €2.5b debt in May already), to finance the acquisition of its Finnish rival DNA Oyj (54% of it for €1.5b, but then triggering a mandatory tender offer for the remaining 46% expiring Sept 26). The purpose of this issuance therefore seems mainly to finance this mandatory tender offer but not only, as TELNO will also repay the €750m 4 1/8 Mar20s. The CDS notably underperformed the € IG CDS universe today. Indeed, the 5y spread came wider +6bp vs Main s31 index slightly tighter -0.2bp and Main s31 NAV slightly wider +0.6bp. The TELNO 5y mid went from 15.5bp to 21.5bp so quite a big relative move (+38%). And indeed, the pricing came +40bp above € swaps for the shorter bond issued today (4y or Sep23s), guidance had been +40/45bp. In April Moody’s IS had affirmed A3 post offer on DNA, but last week (Sept 8) S&P GR downgraded TELNO to A- from A on that debt-financed DNA deal and on the back of weaker than expected performance in Asia. On that last point. It is worth recalling that indeed the last results (Q2 – reported in July) were soft. The revenue miss was mainly driven by Pakistan and Norway at both revenue and EBITDA levels. In brief, the weakness is Pakistan was due to the new data tax there, which had been dropped previously but was reintroduced even worse than before... Now that S&P GR made the move, all eyes are on Moody’s, looking for a potential change of stance.