France Telecom, the majority owner of the mobile phone operator Orange, launched its long-awaited €15bn (£10bn) rights issue yesterday in an effort to cut debt and restore financial health.
The company, weighed down by a €68bn debt mountain, has priced its cash call at €14.50 a share – a 28 per cent discount to Friday's closing share price of €20.20.
Despite the sheer size of the fundraising, which is even greater than the £5.9bn rights issue carried out by the UK telecoms company BT in 2001, it seems almost certain to go through. The French government, which owns about 56 per cent of France Telecom, is subscribing for about €9bn of the issue to avoid its stake being diluted. Furthermore, the issue has been fully underwritten by a syndicate of 21 banks.
The move is a key part of the company's strategy to get its finances in shape after an acquisition spree led by former boss Michel Bon left the company on its knees. Thierry Breton, France Telecom's new chairman and chief executive, said: "I would like France Telecom to become a normal company as quickly as possible. It's a simple operation, a completely guaranteed operation and it is clearly in the interests of shareholders."
Shares in France Telecom closed down 1 per cent yesterday at €20. The stock earlier rose as much 6.8 per cent as investors piled in to take advantage of the cut-price offer.
Under the terms of the deal, which was thrashed out over the weekend, shareholders will have the right to buy 19 new shares for every 20 they currently hold at a price of €14.50 each. The French government will not be able to sell its shares for six months after the deal completes, Mr Breton said.
France Telecom said yesterday the cash raised would cut interest payments on its debt by €500m this year and by €700m to €800m in 2004.
The rights issue comes less than three weeks after France Telecom published its financial figures, revealing a record loss of €20.7bn after accounting for €18.2bn of exceptional charges and goodwill amortisation.
"The timing of the rights issue was a bit of a surprise since it was expected later on in the year," analysts at Fortis Bank said. "The rights issue financing will further improve FT's liquidity situation and help it implement its debt reduction programme."
The credit ratings agency Standard & Poor's said yesterday it might raise France Telecom's "BBB-" long-term debt rating after confirmation the cash call was going ahead.
"The rights issue will have a strong, immediate positive impact on FT's credit measures," Standard & Poor's credit analyst Guy Deslondes said.
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