Indefensible

9 December 2002 By Mike Monnelly

Indefensible

9 December 2002 By Mike Monnelly

The group may have to put £1.5bn into escrow for tax reasons. If so, it could ill afford its restructuring to disappoint. C&W should have disclosed this liability before. That it did not is indefensible.

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Cable & Wireless has to place £1.5bn in an escrow account or secure a bank guarantee for that amount – unless it can renegotiate a deal with Deutsche Telekom.

The liability arises from C&W's sale to DT of a 50% stake in the UK mobile operator one2one. As part of its agreement to indemnify DT against potential tax liabilities on the deal, C&W promised to set aside £1.5bn in the event that its creditrating were downgraded to junk status.

Moody's, the credit agency, downgraded C&W's rating to Ba1, the highest junk level, late on Friday.

C&W's board said that on the basis of current trading conditions, Cable & Wireless has sufficient financial flexibility to implement its restructuring of Cable & Wireless Global and to meet its debt obligations.

C&W had £3.8bn of gross cash in September 30 and £470m of investments earlier this month. Set against this are the potential £1.5m escrow payment, the anticipated £800m cost of restructuring Global and £1.2bn of bond redemptions due in 2003.

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