Friday, June 11, 2010

Richard Li's big Bulgarian venture flounders

HONG KONG: Richard Li Tzar-kai is in crisis talks with lenders and the Bulgarian government over Vivacom, the East European country's dominant telecoms provider and one of the PCCW'' boss' big private investments.

Vivacom, which has '1.63 billion (HK$15.4 billion) of debt, may breach its loan agreements on June 30 because its profits are deemed insufficient compared to its borrowings, two people with direct knowledge of the situation said.

According to a person who has seen Vivacom's lending agreements, by June 30 its total debt must be worth no more than 7.2 times its earnings before interest, tax, depreciation and amortisation (ebitda).

Vivacom had ebitda of '169 million last year, according to its public statements. That means its total debt was almost 10 times its profits at the end of last year.

Li travelled to Sofia this week for meetings with government officials as well as Vivacom's management team, people with knowledge of the tycoon's movements said.

One of Vivacom's bankers speculated that Li wanted the Bulgarian government to help him convince the telecoms company's lenders to give it more time to grow its profits and restructure borrowing before they demanded their money back.

Vivacom is majority owned by PineBridge Investments, a private equity fund Li bought from bailed-out American insurer AIG for US$500 million on March 30 this year. A person involved in discussions said Vivacom first signalled it could breach its lending agreements at the turn of this year. Li agreed to buy PineBridge from AIG last September, but the deal took many months to close.

The Bulgarian telecoms firm is successful and profitable, but has been unable to earn enough to service the jumbo loans AIG took out to buy the company in August 2007, the height of the global credit boom.

The PCCW boss, who is the younger son of Asia's richest man, Li Ka-shing, is offering to partially repay banks, including RBS and Deutsche Bank, which are owed just over '1.3 billion by Vivacom.

But Li has dismayed a group of junior lenders, including hedge funds, which Dealogic figures show are owed '325 million. They bought high-risk "mezzanine debt", which paid interest of nearly 12% annually but offered scant repayment rights if Vivacom ran into trouble.

A source involved in discussions said Li's repayment plan would not compensate these junior lenders.

A spokesman for Li declined to comment. A Vivacom spokesman said "we do not comment on market rumours and speculation".

Li has offered to inject '150 million of new cash into Vivacom.

He has also said he will raise up to '200 million for the banks by selling some of its assets, including property, Debtwire, a financial information provider, reported last month.

Investment bank Lazard, which is advising Vivacom on the restructuring, declined to comment, as did Houlihan Lokey, the bank advising junior lenders. ' South China Morning Post

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