Undoubtedly CYTA is one of Cyprus crown jewels. An organization with a stronghold in telecommunications with a valuation in the billions, it would certainly be a prime target for acquisition. According to this FT.com article dated August 2005 “Three years ago, it was valued at about C£2bn.” That was the valuation of the organization some 10 years ago and most likely that valuation has appreciated over time.
As reported in the media, the president of CYTA stated to the Troika committee that CYTA pays in the last years about €80 million to the Cyprus government. This at least confirms the amount stated in annual report of CYTA for the year 2010.
Assuming that the government of Cyprus does not pay any costs in the operations of CYTA and there is no possibility that CYTA would ever request a bailout like Cyprus Airways, then it is not a bad investment. It is almost like the government of Cyprus, deposited few billions in the bank getting an annual interest in return.
But how about this question: Can the government of Cyprus do better?
Let’s take a look at this scenario:
If the government of Cyprus has an outstanding loan of 4 billion Euro and pays a conservative interest rate of 4%, then its yearly outlay to finance the debt is 160 million Euro. On the other hand if CYTA is conservatively valued at 4 billion Euro and only generates 80 million as a dividend, the return on investment is only 2%. It would seem that it may be worth selling CYTA, paying off the debt thus saving an additional 80 million Euro per year.
Another scenario would be:
CYTA is expanding rapidly and generates substantial revenues with considerable profit margins that makes it an investment to hold on to. Dividends paid out to government of Cyprus increase and helps the government pay down the debt or use the money to cover additional expenditures.
As competition between CYTA and the other players, notably MTN and Primetel heats up, this may erode the valuation of CYTA so now may be a good time to sell. If again, CYTA is expanding into other areas that maybe more profitable and CYTA has an advantage over competition, it is worth pondering.
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