Telekom Austria CEO says Bosnian hopes improved

By Boris Groendahl

VIENNA (Reuters) - Telekom Austria (TELA.VI: Quote, Profile, Research, Stock Buzz) has good chances to win the upcoming auction of a stake in Bosnian telecoms operator BH Telekom as financial buyers will be held back by less favorable financing conditions, its head said on Tuesday.

Telekom Austria, which earlier this month bought Belarus mobile operator MDC and owns companies in Bulgaria and the former Yugoslavia, and one or two other possible bidders would be able to extract most value from BH Telekom, CEO Boris Nemsic said.

"I respect the competition," Nemsic said at the Reuters Central European Investment Summit in Vienna. "But when you look at the environment, at who has most synergies, the most natural partner is us and maybe one or two others."

"Due to the current market environment, the private equity funds are probably not going to be the frontrunners," he added. "So our chances are higher than they were two months ago."

Telekom Austria is looking into further buys in central and eastern Europe beyond its plans to buy BH Telekom, Nemsic said.

But it was difficult to predict which deals would come up and when, he said, adding that the group would restrict itself to small and medium-sized countries.

"There are no concrete projects we are currently working on. If some country comes into the process, we have to look at it," Nemsic said. "Where we have to be very careful is the size. We are excellent if a market (of up to) 25 million people -- if it's a country with 40 million plus it's too big for us."

BELARUS DEAL

Telekom Austria was outbid in two auctions over the last year -- in Serbia and in the Serb part of Bosnia -- and abandoned plans to buy a stake in Greece's OTE (OTEr.AT: Quote, Profile, Research, Stock Buzz) because it said it could not gain industrial control in that deal.

But it succeeded earlier this month in buying Belarus operator MDC for $1.45 billion, plus a performance-linked potential premium, in two installments by 2010. Nemsic said there had been fierce competition on the deal.

"There was competition, fierce competition, in the background but finally we made it. There was public information that VimpelCom (VIP.N: Quote, Profile, Research, Stock Buzz) was very interested... but there were some others from Scandinavia too," he said.

"We paid a fair price which reflects the situation of the company and risk of the country... We made a good deal."

Nemsic declined to update Telekom Austria's multi-year profit outlook to include the Belarus acquisition, but said the deal would add to earnings from the first day at any rate. He said the group would give an updated outlook next March.

It currently forecasts net profit to drop in 2007 and to rise 10 percent on average per year until 2010. Analysts have put the increase in net profit thanks to MDC at 5 to 10 percent over the next few years.

Telekom Austria has suspended its share buyback program in the wake of the Belarus deal, saying it would resume it once net debt was back at a level of twice core earnings -- which it expects to reach by the end of next year.  Continued...