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Weak NOK hurts

23 October 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 met consensus’ estimates on its Q3 EBITDA at NOK 12.1b, i.e. EBITDA margin is stable at 41%. Revenue was ~in line with consensus as well at NOK 29.5b. This follows a soft Q2 (reported in July) mainly driven by Pakistan and Norway at both revenue and EBITDA levels. The weakness is Pakistan was due to the new data tax there, which had been dropped previously but was reintroduced even worse than before. The 5y CDS was ~flat on the day, and the stock lost ~2% as net income was impacted negatively by high net currency losses of NOK 1.8b. This was due to a weakening of the Norwegian Krone (NOK) and the recognition of an income tax expense of NOK 2.5b related to the reassessment received on Aug 22. NOK is indeed the 2nd worst G10 currency of the year (-2.75% vs EUR) just after SEK (-5.32% vs EUR). For reference, since the end of the sovereign crisis, NOK has lost almost 40% vs the euro. In April Moody’s 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. People now look towards Moody’s for a potential change of stance. Back in Sept, TELNO had come 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 was to finance this mandatory tender offer but not only, as TELNO will also repay the €750m 4 1/8 Mar20s. At that point, the 5y CDS mid came from 15.5bp to 21.5bp and at today’s close it is 24bp.