Colt Telecom rejects hedge fund attempt to put it into administration over £1.2bn bond

The Telecoms group Colt Telecom yesterday angrily dismissed attempts by a hedge fund to have it put into administration as "ludicrous and without merit".

Highberry, part of the New York-based hedge fund The Elliott Group, has alleged that Colt will not be able to repay or refinance its £1.2bn of bonds when they become due between 2005 and 2009.

Consequently, the hedge fund group plans to present a petition for the appointment of an administrator, which could come as soon as next Tuesday.

Colt hit back at the allegation, saying there was "no basis whatever" for Highberry taking such action and that it believed the move was "entirely without foundation".

"The board is confident that Colt will be able to repay or refinance its bonds when they fall due," the company said, noting it had about £1bn of cash and no bank debt.

Steve Akin, Colt's chief executive, said the allegation was "ludicrous and without merit" and vowed the company would "vigorously" defend itself against the "aggressive action".

"The board will take whatever steps are required to protect the interests of its stakeholders against this self-serving attempt to force an unjustified transfer of value from shareholders to bondholders," Colt said.

Highberry, which owns an estimated £75m of Colt bonds, first approached Colt about two months ago to gather more information on the company's finances. Mr Akin said the hedge fund had told Colt on Friday evening that it planned to take action and intended to file a petition on 15 October. "Whether they will file or not, I don't know," he said.

In its defence, Colt also said yesterday that its underlying profits, before interest, tax, depreciation and amortisation, were growing and that its capital expenditure requirement was falling as construction of its network was now complete. It expects to be free cash flow positive during 2005.

While City analysts remain divided on whether Colt would break even without a further cash injection, they were pretty much united in the view that Highberry would not succeed in its attempt to wrestle control of Colt.

Credit Suisse First Boston analysts said: "In our view, Highberry's intentions appear to have no legal basis, as Colt is not currently in default, nor is default imminent" for at least the next 12 months.

Fraser McLeish, an analyst at Investec, said: "Highberry looks to be on extremely shaky ground and just trying to make a quick turn on bonds bought for a fraction of the market price."

"There is no legal precedent for this as the bondholders have little rights as long as they are getting paid their interest. We would expect any petition to get thrown out in court," he added.

Elliott Group is perhaps best known for successfully suing the Peruvian government in 2000 over debts. The case resulted in a payout of about $58m (£37m).