Telstra shares fall after sale news

SYDNEY - Shares in Telstra Corp Ltd hit a fresh near nine-year low today after the Australian government said it would sell A$8 billion ($9.6 billion) worth of its stake in the country's top phone firm.

Telstra shares fell as much as 2 per cent as investors digested news that additional shares would come to the market in an offering for retail and institutional investors in October/November as part of the government's long-held plan to divest its 51.8 per cent stake.

"We don't know what the pricing mechanism is going to be yet ... so there is uncertainty and the market is going to adjust accordingly," said Tony Russell, ABN AMRO Morgans senior equities adviser.

By 0130 GMT, Telstra shares were trading down 0.86 per cent at A$3.47 -- just 17 cents above the retail offer price when it went public in 1997. The broader market was up 0.05 per cent.

Citigroup analysts, who have a "sell" rating on Telstra, see domestic institutional demand between A$2.80 and A$3 and do not expect details of the offer to be released until mid-October.

The government said the sale structure will allow retail investors to pay for their shares in two instalments over 18 months, but still be entitled to the full 28 cents dividend that Telstra intends to declare in fiscal 2007.

Credit Suisse analysts, who have an "outperform" rating on Telstra, said an initial instalment price of A$1.90 a share for retail investors, representing a 14.7 per cent dividend yield, would be highly attractive.

The government said it will transfer the rest of its holding into a fund set up to cover public service pensions, but will be held in escrow for two years.

Based on Friday's close, Telstra shares have fallen 26 per cent over the past year, battered by a public spat between company executives and the regulator over access prices and profit downgrades.

The government did not specify how many of its 6.446 billion Telstra shares it would float but A$8 billion worth of shares represents around 36 per cent of its holding.

In further bad, though widely expected, news for Telstra, Australia's competition regulator on Monday rejected monthly prices the company wants to charge rivals to access its copper network.

The access fee Telstra charges rivals, including SingTel's Optus, to use the so-called unbundled local loop (ULL) -- the copper line between a house and phone exchange -- is key for Telstra's revenues and profits.

- REUTERS