In an attempt to appease its banks, the UK telecoms group has unveiled a major restructuring policy. This has shaken investors’ confidence, causing shares to nosedive still further. But while many of its recent investments may prove worthless, Energis’ core business is still viable. Its lenders are likely to agree to renegotiate the loan terms, rather than forcing it into bankruptcy.
Energis shares have plummeted after the company said it would breach its banking covenants.
Shares in UK telecoms group Energis tumbled 62% on Thursday, after it revealed new strategic initiatives to deal with concerns that it could be in breach of its financial covenants. The carrier will sell its European businesses to generate some cash, and will also cut 400 jobs from its UK divisions.
The struggling firm has been in talks with its lenders following a four-week strategic review – the upshot of which mean be kissing goodbye to its ventures in the struggling European web hosting market, despite having invested $1.4 billion in them. If the company is unable to sell these assets, it will have to shut them down. Energis hopes that making these cutbacks will encourage its banks to make lifesaving amendments to the covenants.
The firm took out a $1,033 million loan facility in November 2001 just as new orders took a plunge, bringing an earnings warning in January. Since then it has been feared that the company might breach the terms of these loans. It has already withdrawn $862 million from the facility.
After the earnings warning in January, Energis’ shares fell more than 40%, wiping $583 million from its stock market valuation. But today they dropped to an all time low of just five pence per share, a fall of 62%.
Energis has submitted the business plan to the syndicate lenders, members of which include Barclays Capital and Dredner Kleinwort Wasserstein. It will now have to wait two to three weeks for the banks’ decision. National Grid, Energis’ primary shareholder, has said that it will not pledge extra funds for the deteriorating company.
These drastic measures are necessary: the UK business is the only area to show growth or to generate the revenues required to pay the loans back. Concentrating on the company’s strength at home is the only way through this mess. Given the core telecoms operations’ good cashflow, it is likely that the banks will agree to the amendments.