Murdoch to raise £1bn by remortgaging Sky stake

Rupert Murdoch is to raise up to $1.5bn (£1bn) by remortgaging part of News Corporation's controlling stake in BSkyB through a convertible bond issue.

The move will raise at least $600m in cash and pay off $715m of convertible debt raised through a similar issue in 1996. The money will be used for "general corporate purposes" which include Mr Murdoch's plans to buy DirecTV, a US satellite company which would fill a hole in his global portfolio of television assets.

News Corp is issuing bonds exchangeable, from April next year, into shares representing 5.6 per cent of Sky or 109 million shares. That would reduce the News Corp holding in Sky to about 30 per cent but it has the right to use cash instead to meet any bonds being converted. No new Sky shares will be issued. News Corp is simply putting up part of its existing stake to raise money.

Sky shares closed down 4 per cent to 610p on fears of a stock overhang, which would increase the free float by some 9 per cent, if it came on to the market. However, it is thought likely that News Corp will buy off any bonds that are converted. One industry source said: "Murdoch will not want to see his stake [in Sky] diluted. He loves Sky, it's as simple as that."

The convertibility of the bonds only kicks in at a 36 to 38 per cent premium to the current share price. The new debt, with a 20-year maturity, carries a 0.75 per cent coupon, plus 75 per cent of any dividend that Sky pays, compared with the 5 per cent coupon on the previous convertible bond issue – replacing this will save some $40m a year. Sky currently pays no dividend. The new issue is worth $1.35bn plus a $150m "green shoe" option.

Analysts at Lehman Brothers said: "We think it likely it [News Corp] would pay cash if at all possible rather than give shares if [bond] holders were to trigger an exchange. The company has paid cash whenever holders of the 1996 exchangeable have asked to exchange."

Mr Murdoch has long stalked DirecTV, which would give him a US distribution network. General Motors is putting up for sale its stake in Hughes, which owns DirecTV. News Corp already has $3.1bn in cash on its balance sheet, while Hughes carries a price tag of some $18bn.