More Telecom Debt sinking in
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A basket of emerging telecommunication stocks tracked by Merrill Lynch & Co. is down more than 60% so far this year, while the firm's index of large U.S. telecom stocks is down 31%. That's even worse than the Nasdaq Composite Index, which is down 24% (though it is also 39% off its high in March).
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In short, telecom investments -- a sector that had been soaring and has seen more trading volume than almost any other group -- has reversed course and become a black hole for stock investors, bond investors and the "smart money" crowd that made equity investments in publicly traded start-ups. The shift also spilled over into earnings results for Lucent Technologies Inc., which said it had to set aside reserves to cover loans it made to telecom start-ups.
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The biggest test of the telecom sector's ability to regain firm footing will be the initial public offering of stock planned by Verizon Wireless, which hopes to raise $5 billion later this fall. Back in August, when the company picked the IPO's underwriters and filed its initial registration documents with the Securities and Exchange Commission, investors had widely expected the company, the largest and one of the strongest wireless companies in the U.S., to boost the offering size to as much as $10 billion.
But in the midst of the mayhem, investors say they're now taking a very cautious approach to the Verizon deal, and warn Wall Street underwriters that they want the offering price to leave a lot of room for the stock to increase. In response, the lead bankers for the IPO, Goldman Sachs and Merrill Lynch, are moving ahead slowly. No marketing "roadshow" to institutional investors has been scheduled or even discussed with investors, many of whom own AT&T Wireless Group, the huge IPO issued by AT&T that now is more than $10 below its offering price.
"You have to price [Verizon] so you know people will make a significant amount of money, otherwise you may end up with another AT&T Wireless," says Mike Eggly, a portfolio manager who oversees $2.3 billion of telecommunications and technology stock investments at Northern Trust in Chicago.
Selling the deal could be made tougher by the fact that Verizon will end up competing for investors with a host of European wireless deals expected before the end of the year. New Orange PLC of Britain and Spain's Telefonica Moviles both plan to bring giant deals to the market this fall.
Citigroup Inc.'s Schroder Salomon Smith Barney calculated that European telecom issuance could total $55 billion in the final quarter of the year, more than half of the total projected financing pipeline. Of course, those issuers also have recognized the difficulties that lie ahead. The Telefonica deal has been scaled back and Dutch phone giant KPN NV, which managed to raise $4.5 billion in debt last month, may delay a much-discussed equity financing until late this year or early next year.
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A little shot at AWE? |
