KPN shares nosedive

Shares in Dutch carrier nosedived as much as 21%, after rumours of an imminent rights issue.

Shares in the telecoms firm have lost 80% of their value over the past year hitting a three-and-a-half year low of 8.76 euros on Friday morning.

The latest drop was caused by a report in the Financial Times newspaper saying that the firm was about to issue a 5bn to 5.5bn euro rights issue in order to reduce its debts.

The steep drop in the share price came before the firm reported a net loss of 539m euros (£322m, $456m) for the first three months of the year.

KPN, like many of its competitors, is weighed down by the heavy debts accumulated after buying third-generation mobile phone licences.

Dilution fears

The substantial debt pile, which has now risen to 23.2bn euros, resulted in KPN's credit rating being slashed last year to triple B - the lowest investment grade level.

A rights issue - where existing shareholders are offered more shares at a discount price - would help relieve the debt mountain and, in theory, help restore its credit rating.

KPN Q1 2001 results (euros)

net loss 539m

Pre-tax profits 795m

Sales 2.96bn

Q1 2000

Net loss 159m

Pre-tax profits 815m

Sales 2.35bn

But rights issues also dilute the share price, with many investors quickly dumping their shares on the back of the news.

KPN has not confirmed that the rights issue is on the agenda.

"We are looking at all sorts of possibilities to improve our balance sheet, but no decisions have been made yet," said KPN spokesman Bram Oudshoorn.

The flotation of cell phone arm KPN Mobile is one possibility, but stock market conditions make this an unappealing option in the short term.

And in March the company listed non-core assets that it intends to ditch in order to raise a further 5bn euros.

Below expectations

The quarterly results fell slightly short of analysts' expectations, but were in line with guidance issued by KPN last month.

KPN blamed the weaker results on price cuts at is fixed line services and costs relating to its acquisition of German mobile operator E-Plus.

But the Dutch firm reiterated its forecast of 10-15% growth in turnover for the full year, and expects pre-tax profits to rise by 5%.

KPN shares staged a slight recovery in the early afternoon. They closed down 18.5% lower at 8.99 euros.