London, April 28 (Bloomberg) -- Investors snapped up today's bond sale
from British Telecom Plc, allowing the nation's No. 1 telecommunications
provider to set a record for the biggest sterling-denominated bond sold by a
U.K. company.
BT sold 600 million pounds ($971 million) of bonds repayable in 2028,
boosting the sale from an initial size of 500 million pounds to top the
previous record holder, a 500 million pound bond sold by Glaxo Wellcome
Plc in January 1996.
The telecoms company has eschewed the multibillion dollar takeovers
favored by rivals including Deutsche Telekom AG and Vodafone Group Plc,
in favor of buying small stakes in a wide range of companies, particularly in
Asia. Fund managers said that strategy helped boost the bonds' appeal.
''They have a reasonably low-risk investment strategy, and there's a degree
of comfort among investors that will continue,'' said David Roberts, who
helps oversee about $5 billion at Britannia Investment Managers in Glasgow
and bought some of the BT bonds. ''It was reasonably priced. ''
Since October, BT has spent more than $2 billion buying stakes in phone
companies across Asia and in Latin America, culminating in the purchase of
a joint 30 percent stake in Japan Telecom Co. with AT&T Corp. of the
U.S. last weekend.
It's attempting to gain a foothold in new markets by investing in fast-growing
mobile phone companies and in operators seeking to challenge a country's
dominant phone operator. The company has accelerated that strategy in the
past six months, taking advantage of economic problems in Asia, where
cash- strapped governments are allowing foreign phone companies to access
their markets.
Ground Level Investing
In other recent investments, BT also bought a fifth of Hong Kong's
SmarTone Telecommunications Ltd., 23.5 percent of Korea's LG Telecom
Co, and a 20 percent stake in ImpSat, a Latin American phone company.
''They're buying into new entities at the ground level rather than the old dog
with all its fleas,'' said John Tysoe, an analyst at SG Securities in London.
By contrast, Deutsche Telekom last week said it would buy Telecom Italia
SpA, Italy's former phone monopoly, for $90.6 billion, as the Italian
company fends off a hostile $65 billion bid from its smaller rival Olivetti
SpA. And Vodafone has agreed to pay $68.3 billion for Airtouch
Communications Inc., the largest U.S. cellular phone company.
It's a strategy BT said it plans to continue, even as a wave of mergers grips
the telecommunications industry. The company is currently in talks to raise its
stake in Airtel SA, Spain's No. 2 mobile phone company. ''We've never
been very in to large-scale mergers,'' of the Deutsche Telekom-Telecom
Italia nature, said Andy Green, BT's group director of strategy and
development. ''We think the growth strategy we're on works very well.''
No Sudden Moves
Typically, bond investors ''would rather see a gradual rollover of expansion,
rather than a sudden move,'' said Andrew Burton, a bond analyst at Royal
Bank of Scotland. To date, BT's acquisition strategy has fit this pattern, he
said. ''Although spreads on these bonds could underperform other 30-year
credit issues, I would buy the issue. Relative to where BT's equity is trading,
and where gilts are trading, it's good value.''
BT also opted to sell its bonds at a time when long-dated
sterling-denominated debt is in scarce supply. The U.K. government hasn't
sold conventional long-dated gilts since May, prompting corporate
borrowers to fill the gap in demand.
There was ''significant demand for BT at the long end'' of the sterling
market, said Andy Longden, group treasurer at BT. Proceeds from the bond
sale will be used for general corporate funding purposes, he said. The sale is
''intended to add some duration to the BT debt portfolio,'' he said, declining
to say whether the issue was swapped.
Rarity Value
BT last sold bonds in 1997, and it hasn't sold sterling- denominated bonds
since 1994, said Barclays Capital, which managed the sale. ''It's BT's
strategy in capital markets to enhance its name by having a small number of
very high quality issues that perform well in the markets,'' said BT's
Longden.
BT is currently rated ''AAA'' by Standard & Poor's Corp., its top
investment grade, though the rating company is reviewing that rating and may
cut it. Moody's Investors Service Inc. rates the phone company ''Aa1'', one
notch below the top grade.
Today's bond sale was ''clearly a blowout,'' said Karl Bergqwist, head of
fixed income credit research at HSBC Markets. ''It was generously priced.
It really is priced as a single-A,'' and BT ''paid a premium over and above
what they would have had to pay,'' he said.
Bloomberg analytics suggest thirty-year sterling bonds yield about 5.4
percent, compared with 5.765 percent on the BT bonds. That yield offers a
premium of 110 basis points to U.K. gilts maturing in 2028.
Investor demand for the bonds is ''expected to come predominantly from
traditional U.K. based-investors,'' said Barclays in a statement. Investor
demand has also come from ''German, Italian and Middle Eastern
accounts,'' it said.
Today's sale ''is a huge, liquid benchmark issue,'' and many investors will
seek to purchase the BT bonds for that reason, said Burton.
Investors typically favor bigger issues that are easier to trade. The average
size of international bonds sold so far in 1999 is $355 million, an increase of
45 percent from $245 million a year ago. |
