Record Telecom Bond Deal Lures Buyers
France Telecom has had a tough time getting investors to buy its stock recently, but its offering this week of corporate bonds is attracting huge interest worldwide.
France’s largest phone company is selling about $16.4 billion worth of bonds, double its original plan, making it the biggest corporate bond sale ever.
The company is raising the money to pay off about $7.4 billion in maturing debt and to fund investments in new wireless services.
But the cost of the capital-raising binge will be substantial, analysts say: France Telecom is offering its highest-ever yields compared with U.S. government bonds. Analysts also expect that the bonds will yield a percentage point more than the average investment-grade corporate bond.
“There are three attractions of these bonds and they’re yield, yield and yield,” said Dominic Powell, director of corporate bonds at Henderson Investors, which oversees about $74 billion in assets.
“It’s a good deal, and this [telecom bond] sector has been beaten up,” said Peter Cordrey, money manager at Prudential Asset Management in Newark, N.J.
He expects 10-year France Telecom bonds to yield 2.85 percentage points more than 10-year Treasury notes, which paid 4.97% as of Tuesday.
European phone companies will issue at least $56 billion in debt this year just to repay maturing bonds, J.P. Morgan Chase & Co. estimates.
What’s more, the companies are spending about $200 billion to buy the licenses and equipment to offer faster Internet access via mobile phones.
France Telecom also needs to raise significant sums to buy back shares it issued last year to Vodafone Group to acquire Orange, Europe’s second-largest wireless phone company.
The French giant’s credit rating has dropped four notches since the beginning of 2000 because of the expected debt increase and concern that the falling value of phone stocks would make it difficult for the company to pay off debt.
But heavy bidding for France Telecom’s bond offering this week shows that investors are still willing to buy riskier bonds if the yield is high enough.
The France Telecom bonds include provisions to pay investors extra interest if the firm’s credit ratings are cut further.
On the New York Stock Exchange, France Telecom (ticker symbol: FTE) shares rose $2.15 to close at $62.70 on Tuesday. They have plunged from a 52-week high of $203.50 as investors have become much more concerned about growth prospects for telecom companies.
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Tougher Sell
Investors are hungry for France Telecom’s giant bond offering this week, but its stock has been another matter in recent
months.
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France Telecom shares on the New York Stock Exchange, monthly closes and latest
Tuesday: $62.70, up $2.15
Source: Bloomberg News
