Carlos Slim Bears Heavy Losses on Investments in KPN and Telekom Austria

On Tuesday 18 December the Financial Times reported that Carlos Slim, the world’s wealthiest man, has lost around €2 billion (£1.63 billion) on his investments in the European market.

Mr Slim’s America Movil (NYSE:AMX), Latin America’s biggest telecom operator, holds a 28 percent stake in Royal KPN (AMS:KPN) after having spent about €3 billion (£2.45 billion) to acquire it. The Dutch telecom operator saw its share price plummet by 14 percent after it paid €1.35 billion (£1.09 billion) to secure the spectrums needed to implement fourth-generation mobile-phone technology across the Netherlands.

The fee equals to almost a fifth of KPN’s market capitalization and has discouraged investors who were hoping for a stock pick up. Shares in the Dutch telecom operator have lost 57 percent of their value so far this year.

KPN’s balance sheet is under heavy pressure and this week the company announced it won’t be paying dividends and will reduce next year’s to the meagre €0.03 (£0.02) per share. Even with those cost reductions its net debt forecast is for 2.8 times earnings before interest, taxes, depreciation and amortization (EBITDA) in 2013, above its target of a 2.5 multiple.

Credit rating firms have already weighted in the financial situation of the company with Fitch yesterday downgrading its debt to one notch above the “junk” status.

According to analysts quoted by the FT, KPN had no choice but to pay whatever price the auction set in order to acquire the necessary licences to the 4G spectrums and meet its strategic goal of retaining its number one spot in the Dutch mobile market.

Sander van Oort, analyst at Kempen Securities, along with a number of other experts, expected KPN to pay around €500 million to €700 million (£406 to £570 million) in the auction. The €1.35 billion (£1.09 billion) figure came as a nasty surprise for investors and led to the share sell-off.

America Movil also has a 23 percent stake in Telekom Austria – a formerly state owned carrier which saw its share price plummet by a third since Mr Slim’s acquisition. The company’s revenue has been declining for 15 consecutive quarters which led to an 87 percent reduction in the dividend payment for this year. The Austrian mobile operator said it will probably miss forecasts for next year as sales per user have declined.

The 23 percent stake owned by America Movil cost €883 million (£717 million) and was acquired through a bulk purchase of a share block backed by fellow telecoms tycoon Naguib Sawiris.

“Slim knows that the telecoms industry in Europe needs to consolidate in the mid-to-long term, so he’s betting the current problems affecting the industry will be solved,” opined Alberto Espelosin, who helps manage €1 billion (£812 million) at Abante Asesores in Madrid.

You can’t blame him for his investments in KPN and Telekom Austria so far, as those are good companies, which are faced with the same problems as other European telecoms, but that at least are doing something to solve them.