Telekom Austria to Take EUR400 Million Write-Down on Bulgarian Subsidiary
Published on: 25th Jun 2014
Telekom Austria Group has issued a profits warning, as it takes an impairment of EUR 400 million on its Bulgarian asset Mobiltel.
This impairment is primarily due to an increase in the cost of capital of the Bulgarian segment and changed expectations with regard to medium-term macroeconomic developments in Bulgaria, as well as related market effects which affect the valuation of Telekom Austria Group's business plan for the Bulgarian segment.
Approximately half of the total impairment is due to a change in the weighted average cost of capital (WACC) of the Bulgarian segment as well as changed medium-term expectations as regards macroeconomic risks for Bulgaria, inter alia due to the crisis in the Ukraine.
As of May 2014 Mobiltel's WACC increased by over 20% versus the last impairment test in the fourth quarter of 2013. This is mainly the result of an increase in the volatility of the Telekom Austria Group's share price in the first half of 2014.
In addition, changed medium-term macroeconomic expectations also result in changed expectations for the entire Bulgarian telecoms market and the development of the Bulgarian subsidiary Mobiltel. On 13 June 2014 rating agency Standard & Poor's cut its sovereign credit rating for Bulgaria from BBB to BBB-, expecting economic growth to remain mediocre unless there are meaningful political and structural reforms. While the management expected a mid-term recovery of the region, this expectation appears no longer sustainable. The resulting effects on the valuation of the business plan for the Bulgarian segment drive the remainder of the impairment.
The impairment will be reflected in the consolidated financial statements of Telekom Austria Group for the first half of 2014.