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Telstra returns to debt market with 1 billion euro sale of 10-year bonds

Tuesday 16th March 2010

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Telstra, Australia’s biggest telecommunications company, raised 1 billion euros in its first bond sale since September 2008, the month that Lehman Brothers collapsed and access to debt funding began to freeze over.

The March 23, 2020, bonds pay an annual coupon of 4.25%. BNP Paribas, Deutsche Bank and JP Morgan led the sale, which was six times oversubscribed, as investors clamoured for the debt of Telstra, rated A by Standard & Poor’s. The phone company had initially sought $500 million.

The oversubscriptions “illustrate the level of interest in demand at the moment,” Gus Medeiros, credit strategist for Australia at Deutsche Bank. The coupon is “a good and fair one” at 103 basis points over swap, he said.

Globally, high-grade corporate issuance in March already exceeds that for the whole of February, and so far, oversubscriptions show that "the market has generally taken the increased level of issuance in its stride," Dow Jones Newswires reported, citing credit strategists at BNP Paribas.

Investors bought Telstra’s debt even as they were forced to weigh the implications of the negative outlook on the company’s credit rating. Issues hanging over Telstra include the Australian government’s protracted deliberations over its broadband rollout and plan to split the company into its wholesale and retail arms.

“Any company that comes back into the debt market now, has got to have a good balance sheet and a story acceptable for institutions,” said head of fixed-income at Tyndall Investment Management, Fergus McDonald. He said Telstra is showing diversification, which is what a lot of corporate are trying to do at the moment.

Almost 300 investors took up the Eurobonds, according to Telstra’s chief financial officer John Stanhope. The company will use the proceeds to repay shorter-term bank debt and for general working capital purposes.

Stanhope said the bond issue will be fully swapped into Australian dollars through to maturity and will provide Telstra with around A$1.5 billion funding, helping lengthen the average maturity of its debt portfolio. Telstra’s shares rose 1.3% to A$3.08 on the ASX today. The stock is rated a ‘hold,’ based on the consensus of eighteen recommendations compiled by Reuters.

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