Billionaire Patrick Drahi says Altice corruption probe a ‘shock’

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Billionaire Patrick Drahi has cast Altice, the sprawling telecoms group he built, as the victim of alleged fraud perpetrated by his longtime partner Armando Pereira in his first public comments since the scandal erupted last month.

“This has come as a shock and as a huge disappointment to me,” the Franco-Israeli businessman said on a call with debt investors on Monday. “If the allegations are true, I feel betrayed and deceived by a small group of individuals, including one of our oldest colleagues,” he added.

Altice has been rocked since Portuguese authorities disclosed a criminal investigation in July. The probe centres on whether Pereira and others were involved in a scheme to enrich themselves by rigging the French group’s local procurement processes in Portugal. Pereira has been placed under house arrest by judges while the police probe continues.

Pereira has previously denied wrongdoing.

The crisis comes as the group’s debt pile has ballooned to more than $60bn amid rising interest rates. Drahi added that the investigation in Portugal would have no impact on the business or the group’s ability to pay its debts, and promised that Altice was co-operating with authorities.

“I assure you that we take this matter very seriously, and we are taking swift proactive action to understand the truth and protect the group from any harm in the event that the allegations are substantiated,” he said.

The billionaire, who built Altice via a series of debt-fuelled deals, also sought to reassure investors that the group did not have any short-term maturities and would be able to deleverage and refinance its borrowings.

Drahi and Pereira have worked together for decades and people who know them both have said they formed a close tandem internally, with Pereira being in charge of cost-cutting each time Altice bought a new company. Although the pair have often been described as co-founders, Drahi sought to distance himself on Monday by calling Pereira a manager he had hired in 2003. 

Drahi clarified that Pereira did not have a direct stake in Altice, nor the Next holding company above it, but confirmed that he did make a small investment in Altice’s first acquisition of less than 1 per cent of the equity and received a carried interest indexed on Altice’s private equity investors.

“Over time, the form of his economic interest evolved, and since 2005 he did not own a single share or right in any of the Altice entities but simply maintained a carried interest of around 20 per cent of my personal economic interest,” said Drahi.

The fallout from the probe has shaken Altice, which has mobile and broadband operations in the US and Europe and rose to prominence during an acquisition spree under Drahi that included the €17bn takeover of France’s SFR in 2014.

Drahi, who has an almost 25 per cent stake in UK telecoms group BT, said on Monday that he would meet creditors in New York and London in September, a step bondholders see as a further effort to allay their concerns over the probe and to lay the groundwork for ways to address its debts.

Speaking alongside Drahi on the call, Altice executives said they were focused on refinancing debt maturing in 2025 and 2026 — a move that will be more expensive given the rapid rise in interest rates over the past 18 months.

Prices for the group’s bonds, which remain in distressed territory, ticked higher after the call with a $1.56bn bond issued by Altice France maturing in 2027 climbing more than 3 cents on the dollar to 49 cents, according to activity reported to Finra.

“The story [for Altice] has always been we’ll lever up to do a deal and then we will use the cash flows from our operational improvement to pay down debt,” said John McClain, a portfolio manager with Brandywine, which has invested in Altice debt. “The last part never manifested itself. It is just continuously borrowing more money to buy more things.”

In the earnings statement released before the call, Altice said it was carrying out internal audits across its businesses, which include broadband and mobile operators in France, the US and Israel.

Altice promised a “full review and thorough reinforcement of the approval process on all procurement, payments, purchase orders and related processes”.