Altice, parent company of cable operator Numericable, which is about to absorb SFR in France and is in the running to buy Portugal Telecom, has also declared on Thursday, November 20, to be open to the acquisition of Bouygues Telecom. But does the holding of Patrick Drahi have the means to go with its ambitions? Is there not there a risk of a “bubble”?
High levels of debt in absolute value
Altice paid 13.5 billion euros to acquire SFR. For the occasion, the Luxembourg holding company and its subsidiaries are highly leveraged. Ultimately, the debt stood at 18.2 billion of debt, weighing also mainly on the French cable operator Numericable.
If Altice is chosen by the Board of Directors of Portugal Telecom, the debt will climb again. For the bill, which would be 7 billion, would be partly paid in cash and partly by issuing bonds.
Additional acquisition, such as Bouygues, would further burden the liability of Altice and its subsidiaries.
A debt ratio still contained
If the Altice debt “seems colossal” at first as an analyst admits, “what they should especially watch for is the ratio of debt to gross operating surplus,” he adds. “But so far it has remained between 3.9 and 4,” tips the analyst, who notes that the bonds issued by the group to date all were oversubscribed.
It must be said that since early 2014, cable operators as a whole have booming financial markets, allowing them to raise debt at relatively low interest rates: in the case of Numericâble, the average rate is 5%.
“In fact [Altice] still has a little bit of margin and is up to a ratio [debt to EBITDA] 5,” says one observer. “Especially,” says an analyst, “with their acquisitions, certainly the debt increases, but so do the margins. And therefore their capacity to borrow and repay.”
Altice peers remind them about some European cable operators that have a higher debt ratio: it is 5.2 for the UK Liberty Global. However, the mobile industry and the cable industry are not the same.
However, many experts believe that these debt ratios that are considered sustainable by cable operators, are much less so from the point of view of mobile specialists, markets tend to consider that there is more growth expected in the first sector compared to the latter.
“At now, the main active of Altice is SFR, which still draws 60% of its income from mobile industry,” says a competitor. “They want to go on like a cable company, while today they are a big player in the mobile market, and perhaps the market will not let them pass this one,” says another.
“If Free dismisses everyone in a deflationary spiral, they will find it very difficult to repay,” speculates an industry expert.