OREANDA-NEWS. Fitch Ratings says Royal KPN N.V.'s (BBB-/Stable) announced sale of its Belgian mobile subsidiary BASE Company to Telenet N.V. (B+/Stable) for EUR 1.325bn will increase financial flexibility for Royal KPN and strengthen Telenet's operating profile.

Fitch does not envisage a significant change in the competitive dynamics of the Belgian telecoms market as a result of the transaction in the short- to medium-term.

The acquisition of BASE will increase the diversification of Telenet's own network ownership and the economics of its converged product offerings. Telenet already currently provides mobile services through a mobile virtual network operator (MVNO) agreement with rival mobile operator Mobistar and has a standalone market share of 7%. The combination with BASE will give Telenet a combined market share of approximately 30% and hedge the group for growth in mobile data services, which could have been more costly to provide and restrictive via an MVNO agreement.

Telenet intends to finance the acquisition through a combination of EUR 1bn of new debt and existing liquidity. This will see Telenet's 2014 proforma net-leverage increase to 4.45x from 3.7x; however, the company has strong cashflow generation and assuming a disciplined approach to balance sheet management it will be able to reduce this within a 12- to-18 month period to sustain its current rating.

Telenet envisages run-rate opex and capex-related synergies of approximately EUR150m annually with one-off investment and integration costs of EUR 240m. Telenet should be able to manage the execution risks well given they are driven by mobile traffic migration onto BASE's network from its MVNO operations, network, IT, marketing and overlapping activities. Potential revenue synergies could be limited, however, given a potentially high degree of overlap in the customer base with both company's strengths derived from the Flanders region of Belgium.

The divestment of BASE will not have a significant impact on KPN's operating profile which is predominantly driven by the company's domestic operations. BASE contributes 5% to group EBITDA. Depending on the company's future shareholder remuneration policy, the sale of BASE improves KPN's financial flexibility with funds from operations adjusted net leverage improving by up to 0.3x, assuming 100% of the sale proceeds are retained.