telstra shuns locals to raise $1.5b in europe

DANNY JOHN
March 17, 2010

TELSTRA has raised $1.5 billion in new debt through a corporate bond issue that does not have to be repaid until 2020.

But it had to go overseas to secure the money because the Australian corporate debt market was prepared to offer only deals of between three and seven years.

Telstra chose to tap the Eurobond market given the prospects of getting away such a large issue - a factor that was underlined by its 1 billion fund-raising exercise being oversubscribed six times.

Grant Bush, head of debt capital markets at Deutsche Bank, which helped get the issue away with BNP Paribas and JPMorgan, said the European move was the key to such a successful 10-year bond, an unusual time span for the Australian market.

''That is the challenge for the Australian bond markets,'' Mr Bush said. ''Here we have one of the biggest corporate names in Australia having to go offshore to execute a 10-year deal.''

The move was a key indicator of investor confidence in Telstra's business prospects given the uncertainty caused by the federal government's plan to build a national broadband network that might end up including its fixed-line business.

Telstra and its increasingly vocal shareholders have voiced concern the government was seeking to acquire its existing ''pipes'' for less than they were believed to be worth, the sale of which could also cut off a major part of its income.

The bond issue was a test of the market's view of Telstra's longer-term single-A credit rating. The three main credit rating agencies, S&P, Moody's and Fitch have their existing ratings on negative outlook or up for review for a possible downgrade because of concerns about future earnings.

Telstra suggested the success of the issue and its pricing - about 100 basis points above current short-term money rates - was an indication the uncertainties hanging over it could be overdone.

''It demonstrates the investor interest in [our] solid credit and business fundamentals as Australia's largest telecommunications service provider,'' Telstra's chief financial officer John Stanhope said yesterday.

The only requirement for additional risk from the largely German, French and British investors who bought the bond was the inclusion of higher-pricing terms if the ownership of Telstra were to change hands between now and March 2020 when the line of credit is due to be repaid.

Telstra plans to use the money to replace shorter-term bank debt, some of which is due to mature this year, and to help finance its capital expenditure plans.

Source: The Age