Market punishes share deal

By RICHARD BRADDELL utilities writer

Telecom shored up its balance sheet but was punished by the market for a $500 million capital raising put together on Tuesday night.

Its shares crashed 31c to $5.61 yesterday after the placement of 91 million new shares with local, Australian and international institutions at $5.50 a share, a 42c discount to Tuesday's close. The slide, on heavy volume of nearly 15 million shares traded, was driven by institutions taking advantage of the price differential to make a quick profit.

But it also had a wider impact on the market as a whole. Many stocks felt the effect of at least two portfolio sellers dropping the likes of Sky City and Tower to raise the money to pay for the placement.

Tuesday night's issue comes after a failed attempt last week to place $500 million shares in Australia at prices rumoured to be between $5.63 and $5.65.

One analyst said the Australian market had insufficient confidence in Telecom's growth story to take the entire issue on its own, hence the issue being extended further afield.

But while the inevitable speculation has circulated that Telecom made the placement to build funds for potential acquisitions, the better view seems to be that its aim is to strengthen a balance sheet that has taken on more debt in the past four years due to growth investments such as AAPT and Southern Cross.

And while the company is regarded as having adequate capital to meet operational requirements, the new capital will comfort ratings agencies, which have put some of its European peers on lower ratings despite stronger balance sheets.

As a result of the placement, Telecom's ratio of net debt to net debt plus capital funds has dropped from 65.3 per cent to 62.5 percent.

The placement has also helped with refinancing short-term debt, which, until the $300 million convertible notes issue to Microsoft two weeks ago, stood at $3.2 billion.

Taking into account cash and near cash of $900 million, and the Microsoft and institutional placements, the placement brings the amount to be refinanced down to $1.7 billion.