Stock market flotation for Orange phones

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The Independent Online

Business Editor

Orange, the rapidly growing cellular telephone company launched less than two years ago, is to be floated on the stock market in March for around pounds 2.8bn, making a new fortune for a wealthy Hong Kong businessman.

The expected flotation price will put a pounds 1.5bn tag on a stake controlled by Li Ka-Shing, head of the Hutchison Whampoa group of companies, and also a pounds 700m valuation on minority shares held by British Aerospace, which was a founding partner in the venture.

Orange has only 7 per cent of the more than 5 million customers in the highly competitive cellular telephone market, which is dominated by Vodafone and Cellnet, the first two companies to be granted licences to operate in Britain.

However, from a standing start Orange has grabbed a quarter of the much faster growing digital cellphone section of the market, which experts think will eventually take over most of the business.

Orange said it now had more than 400,000 subscribers and claimed it was taking 30,000 new customers a month from among the 100,000 who are signing up for digital phones, which give much higher quality and security from tapping.

Two-thirds of new cellular telephone customers are now opting for digital. Orange has also introduced new tariffs to challenge Vodafone and Cellnet.

Orange customers are to be mailed with offers of shares, but they will not be given any special incentives to invest. Hans Snook, managing director of Orange, said: "We don't want to distort the investment decision by offering short term incentives."

Its growth over less than two years since the launch of the service in April 1994 has taken the City by surprise, partly because the track record of Hutchison in the UK had been poor. It was previously the controlling shareholder in the Rabbit telepoint system, in which subscribers could use their phones only near signposted communications points. Rabbit was eventually abandoned.

The company plans to raise pounds 700m in cash by selling a 25 per cent stake in Orange in the share flotation, which will be aimed mainly at professional investors in London, Europe, the US and the Far East. Most of the money will be used to pay off a pounds 700m loan to Orange made by Hutchison and BAe.

After the flotation, Hutchison will control 55 per cent and BAe 25 per cent of the company.

Orange's shareholders have invested pounds 1.1bn of a planned total of pounds 1.7bn in the project, and before Christmas they arranged a borrowing facility of pounds 1.2bn from 49 international banks.

City comment, page 17