Matav Cable Systems

(Nasdaq:MATV) is planning a financing round to help compensate for its massive losses, has learned. The company, controlled by its Chairman of the board, Shmuel Dankner, is planning to issue ten-year bonds in the round.

Matav's losses in Q1 of this year came to NIS 67.8 million, reaching a total of NIS 137.4 million in the last six months. In 2000, the company posted record losses of NIS 210 million.

Worse yet is the gap between the company's debt, NIS 835 million, and its equity, NIS 279.5 million. With a debt three times its equity, the company is doing far worse than it did last year, when its debt, half its size today and NIS 171 million lower, was a mere 1.8 times the company's equity. Its equity back then, was double its size today.

"The company has considered the financing route since its leverage increased and its cash income reduced, which meant that there was no cash available to fund the company's investments," said Matav CFO Shalom Bronstein. "The first option was a bond issue, but we may settle for financing by the bank," he added. Matav has just NIS 1.3 million in cash reserves, while its financing costs in the last quarter alone came to NIS 13 million.

Matav invested NIS 370 million in upgrading its cable network last year, enabling it to provide Internet and other advanced communication services. Bronstein added that the company is expecting additional investments of this caliber this year, though smaller than they were last year.

Matav posted a net loss of NIS 67.8 million this quarter, 2.5% lower than its losses in the previous quarter, but 200% higher than the losses in the comparable quarter last year, when they came to a mere NIS 22.8 million.

Some NIS 36 million in losses result from the firm's holdings, half of which are losses incurred by cellular provider

Orange Partner Communications Company

, of which Matav owns 15%. "Partner is a good company and will soon start making profits. An additional NIS 15 million are losses made by Nonstop, the fast Internet company from the Matav group. We have already shut down this operation and I hope that by the next quarter we will no longer post losses from that endeavor. The other remaining quarter of our losses is that of the actual cable activity which means things are not that bad," Bronstein concluded.

The company has posted a surprising 5.3% growth in revenues from the previous quarter to NIS 113.8 million, as opposed to NIS 108 million in the previous quarter. The growth occurred despite the appearance in the marketplace of

Yes Satellite TV

. Matav's membership rate remains an unfazed 301,000, similar to the comparable quarter last year.

But Matav has extremely high operating costs, due mainly to attempts to maintain its subscribers in the face of its competitors. Most of its expenses are on content, an expense that Matav has almost no control over, since cable companies have signed a multi-annual agreement with producers in the U.S., making content prices untouchable. Operating costs in the first quarter came to NIS 109 million, leaving gross profit at a mere NIS 4.7 million, still a lot larger than it was in the previous quarter, when it reached NIS 1.17 million.

Marketing, sales and administration costs, have also fallen, and this quarter are 21% lower than in the previous quarter, going from NIS 29.6 million to NIS 232 million. The reduction corresponds with the cable firm's decision to tighten its belt in light of its immense losses.

In the current quarter Matav decided to close down its fast Internet enterprise, Nonstop, after it accrued losses of NIS 50 million while showing no revenues. The effect of this cut will become evident in the company's next quarterly report.