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Tuesday June 27 11:48 AM ET
Deutsche Telekom Launches Major Bond Sale
By Jonathan Stempel
NEW YORK (Reuters) - German telephone giant Deutsche Telekom AG (DTEGn.DE) on Tuesday launched the biggest corporate debt sale ever -- a $13.5 billion global bond sale that analysts said will help the company buy third-generation mobile phone licenses and make acquisitions.
The multi-currency sale by Deutsche Telekom, Europe's largest phone company and No. 3 in the world, was expected to be completed Wednesday morning.
It dwarfs by 38 percent a 9.45 billion euro (then about $9.77 billion) debt sale on June 3, 1999, by Tecnost SpA (TESI.MI), a unit of Italian telecommunications company Olivetti SpA (OLIV.MI), as the largest corporate bond sale ever.
The $9 billion dollar-denominated portion of the Deutsche Telekom sale would surpass the $8.6 billion that Ford Motor Credit Co., the financing arm of auto giant Ford Motor Co. (NYSE:F - news), sold on July 9, 1999, as the largest sale of dollar-denominated bonds.
``This deal is so big that some investors, especially index investors, are going to have to be involved in it -- how do you ignore it?'' said Thomas Donne, who manages $1.9 billion as senior portfolio manager for Banc One Investment Advisors Corp. in Columbus, Ohio. ``I don't know how you can be involved in telecoms and not be involved in this deal.''
Deutsche Telekom has reportedly received more than $16 billion in bids for the bonds, and has room under a filing with the U.S. Securities and Exchange Commission to increase the sale to as much as $15 billion.
The sale is expected to include the following:
-- $2.5 billion of five-year notes yielding in the area of 150 basis points more than comparable-maturity U.S. Treasuries;
-- $3 billion of 10-year notes yielding in the area of 195 basis points more than comparable-maturity U.S. Treasuries;
-- $3.5 billion of 30-year bonds yielding in the area of 215 basis points more than U.S. Treasuries;
-- 2.0 billion euros ($1.88 billion) of five-year notes yielding about 53 to 55 basis points more than mid-swaps;
-- 750 million euros ($705 million) of 10-year notes yielding about 73 to 75 basis points more than mid-swaps;
-- 500 million pounds ($749 million) of five-year notes yielding about 145 to 150 basis points more than British gilts;
-- 250 million pounds ($374 million) of 30-year bonds yielding about 265 basis points more than British gilts;
-- 85 billion yen ($806 million) of five-year notes yielding about 25 basis points more than yen Libor (London Interbank Offered Rate).
Deutsche Telekom increased the dollar portion of the sale from $5 billion, the euro portion from $1.5 billion, and both the sterling and yen portions from $750 million.
``It appears to be moving in such an orderly fashion relative to the chaos that was in the corporate market a week to a week and a half ago,'' said Donne, referring to two sizable bond sales that were canceled. ``That is an indication that the market can digest deals of this size if they make good business sense.''
Deutsche Banc Alex. Brown, Goldman Sachs & Co. and Morgan Stanley, Dean Witter & Co. are arranging the sale.
Deutsche Telekom has never sold dollar-denominated bonds before, adding to their appeal for investors looking to put a new name into their portfolios.
``It adds to the appeal of the bonds,'' said Donne, who may buy some of the dollar-denominated 10-year notes.
Buying Licenses, Facing Downgrades
Analysts said the rising cost of third-generation mobile phone licenses -- involving wireless technology that allows wireless telephones to handle data and Internet services -- is the main reason Deutsche Telekom is selling bonds. Bidding for these licenses begins in Germany on July 31.
Deutsche Telekom Chief Executive Ron Sommer has also said the company ``has a clear intention to go to the United States.''
Moody's Investors Service said last week it may cut its rating on Deutsche Telekom's senior debt from the current Aa2, its third-highest rating. Standard & Poor's rates the debt AA-minus, roughly one notch lower, also with a negative outlook. Analysts consider downgrades likely.
As in other recent large corporate bond sales by European telecom giants KPN Telecom NV (KPN.AS) and Vodafone AirTouch Plc (VOD.L), Deutsche Telekom is sweetening the sale by promising to raise its bonds' coupons by 50 basis points if Moody's and S&P cut their ratings to Baa1 and BBB-plus, respectively. Such downgrade protection is common among syndicated loans but relatively new in corporate bonds.
Deutsche Telekom services 49 million access lines and has about 9 million mobile telecom subscribers. |
