Israel's Bezeq Cancels Dividend, May Raise Cash After Fourth-quarter Net Loss

‘Path to recovery for Bezeq’s shares seems longer than ever,’ says Barclays analyst

File Photo: The logo of Bezeq Israeli Telecommunication Corp Ltd, the country's largest telecom group, is seen outside their headquarters in Tel Aviv, Israel June 21, 2017.
Amir Cohen / Reuters

Bezeq Israel Telecom on Thursday reported a large fourth-quarter net loss, hurt by a write-down at its TV business, and said it would cancel its dividend policy and look at raising 2 billion shekels from investors.

Israel’s largest telecoms group also said it was in talks with the communications ministry on deploying advanced services like fibre optics and 5G mobile networks. Bezeq has long been at odds with the regulator over a request to merge its three units into one company.

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Such a move, it believes, would allow it to save money and offer an array of packages but the regulator has been of the view that Bezeq would use its market dominance to stifle competition.

“We are ready to invest huge sums of money for this purpose, and hope that the state will succeed in creating a clear, positive and equal regulatory framework,” said Chairman Shlomo Rodav.

“Bezeq is the only company in Israel that is willing and capable of deploying fiber optics nationwide and provide everyone with ultra-fast internet.”

Its main rivals, Cellcom and Partner Communications, are also in the process of deploying fiber networks but will likely not cover the whole country.

Bezeq lost 1.76 billion shekels ($485 million) in the final three months of 2018, compared with a 205 million profit a year earlier. Revenue slipped 5.4 percent to 2.33 billion shekels.

Bezeq, whose businesses were already facing fierce competition from rivals, said the loss stemmed from a write-down of 1.68 billion shekels — 1.64 billion of it coming from an impairment of assets at TV unit YES.

The write-down comes after Israel’s markets regulator said the company’s subsidiaries were separate cash generating units and not a single entity, as Bezeq had sought.

Path to recovery

Bezeq’s bottom line was also hurt by a provision for the early retirement of staff.

Its shares were down 4 percent in morning Tel Aviv trading, close to a 21-year low hit last week after Bezeq had warned of the write-down.

“The path to recovery for Bezeq’s shares seems longer than ever and we believe investors will want management to demonstrate that it can execute on its restructuring story before becoming more constructive,” said Barclays analyst Tavy Rosner.

Bezeq forecast net profit in 2019 of 900 million to 1 billion shekels, with earnings before interest, taxes, depreciation and amortization (EBITDA) of 3.9 billion.

After cutting its bi-annual dividend to 70 percent of net profit from 100 percent in 2018, Bezeq said it was cancelling its dividend policy.

“The decision was made... due to the impossibility of distributing a dividend as a result of the expected failure to meet the ‘profit test’ in the next two years,” it said, adding this would not prevent dividend payouts from time to time.

Bezeq also said it was considering issuing new debt and raising up to 2 billion shekels in a rights offering to maintain the financial strength of the company.