Monday December 1, 03:02 PM
UPDATE 4-Seat Pagine Gialle starts debt talks with RBS
By Danilo Masoni and Stefano Rebaudo
MILAN, Dec 1 (Reuters) - Italian yellow pages publisher Seat Pagine Gialle (Milan: PG.MI - news)
has started talks with its largest creditor Royal Bank of Scotland (LSE: RBS.L - news) , raising hopes it may gain some relief from its 3 billion euro ($3.88 billion) debt.
The announcement on Monday comes after weeks of market speculation that Seat's private equity owners were studying a 250 million euro capital rise as a base from which to relaunch Seat's business in the Internet age.
Seat said it would inform the market of the outcome of the talks with Royal Bank of Scotland by the end of December, adding that timing for a new business plan would be announced later.
At the end of September, Seat owed nearly 1.571 billion euros to Royal Bank of Scotland, in which the British state holds a 58 percent stake. That amount represented about 50 percent of Seat's net debt.
Analysts are hoping the company could renegotiate its covenants, as happened to Virgin Media (NASDAQ: VMED - news) , and perhaps launch a much-needed capital increase or raise money by other means like asset disposals.
A financial source told Reuters a capital increase was still a hypothesis and added that if launched, it would be with the aim of renegotiating debt covenants until 2010.
In 2011, the company would probably need to rediscuss with banks its entire debt, the source added.
Shares were down 2.01 percent to 0.0585 euro at 1354 GMT and analysts say they price in some risk of default. The fall compares with a 3.2 percent drop in the DJ Stoxx media index .
The company was not immediately available for comment.
CAPITAL RISE MOST LIKELY OPTION
Most analysts said in current market conditions a capital rise was the most likely option for Seat to raise fresh resources, though not the only one, given the reluctance of its private equity owners to inject more money.
They also said a rights issue of 250 million euros, as speculated by the press, would give the company temporary relief but would not solve its balance sheet problems.
'It's a bit like coming up for air but going underwater again,' said one analyst speaking on condition of anonymity.
Another analyst, who declined to be named, reckoned that only a large recapitalisation, of around 1 billion euros, would change things for the company.
He said the share price would react positively to news of a 250 million euro capital hike but then fall back in the medium term.
This analyst said default was something the banks would want to avoid 'given that Seat is an asset-poor company and can therefore offer few assets for banks to recover their money'.
In a note on Nov. 25., Deutsche Bank (Xetra: 514000 - news) said other options for Seat to raise money were asset disposals and its German unit Telegate (Xetra: 511880 - news) being reimbursed in part or all of the 250 million euros it has claimed for data costs against Deutsche Telekom (Xetra: 555750 - news) .
Yellow pages operators need to invest increasingly in switching to Internet services from mature print businesses, in the face of competition from Google (NASDAQ: GOOG - news) in local advertising markets, but Seat has a debt heavier than its peers.
Nearly half of Seat's EBITDA is used to pay interest payments. According to estimates by UBS (Virt-X: UBSN.VX - news) , its net debt to EBITDA ratio is seen at 5.5 times in 2008, compared to five for Britain's Yell and 3.6 for France's Pages Jaunes (Paris: FR0010096354 - news) .
Seat PG was acquired in 2003 via a leveraged buy-out by private equity firms BC Partners, Capital Partners, Investitori Associati and Permira. After the acquisition Seat re-leveraged itself by paying a huge dividend.
(Reporting by Danilo Masoni and Stefano Rebaudo; Editing by Hans Peters and Jon Loades-Carter) ($1=.7728 Euro)
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