Colt shares fall on doubts over funding roll-out plans

Colt Telecom came under pressure yesterday as investors feared current market conditions might affect the business telecoms provider's plans to raise the extra money it needs to roll out its network.

Shares in the company closed down 9.5 per cent at 306p, having lost 10 per cent on Monday. At the peak of the internet bubble in spring of last year, the stock was trading as high as £40.

Analysts had expected Colt, which has openly said it needed to raise a further £600m to fund its business plan, to tap the bond market. However, the recent rise in the yields on its bonds suggest the company, which has close to £3bn of debt, may be forced to tap the equity markets instead.

One analyst, who did not want to be named, said Colt "has always been upfront in flagging the funding gap. But most people thought Colt would not go to the equity market and would focus on the high yield market. Now it's become apparent the high yield market is more difficult, people are wondering what its options are".

At the end of March, Colt had around £1.5bn cash on its balance sheet which is expected to last it until mid-2002. The bulk of the cash is being spent on building its network. A spokesman said: "Clearly, between now and then, we really need to raise about £600m of new capital to support our business plan."

The additional cash is expected to take the company to a free cash flow positive position, expected in 2005.

The analyst said: "I don't think they'll struggle to get the money. This is about what price people will lend the money at and at what price Colt are prepared to pay."

A company spokesman said yesterday that nothing had yet been decided on funding and that Colt had no plans to make a statement.