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Telecom sweetens terms for bond holders to approve split

Wednesday 21st September 2011

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Telecom Corp., the phone company set to carve itself in two to tap government funding and shed regulatory burdens, has sweetened its offer to bond holders owed $541 million in a bid to get the deal over the line.  

The Auckland-based company raised the fee on offer to its Telebond holders to 0.5% from a previously offered 0.25% after discussions with investors, it said in a statement. That will cost the company an extra $1.35 million as it pays out a total $2.7 million of fees to investors. In addition, Telecom will top up its annual interest payment to bondholders by 0.5 percentage points if its credit rating is cut below the ‘A’ band.

“In return for their support, we have agreed to increase the consent fee and provide an increase in the interest rate paid on the existing stock in the event that both Standard & Poor’s and Moody’s decrease the credit rating of Telecom below the ‘A’ band,” chief financial officer Nick Olson said. “The potential coupon increase component of the proposal adds an additional level of comfort for stockholders.”

Telecom put forward a demerger proposal in an attempt to tap $1.35 billion of government funding to build a nationwide broadband network and shed regulatory oversight, which it claimed was overly burdensome. If investors agree to the deal, Telecom’s Chorus network unit become a standalone listed entity, at a benefit of some $500 million to shareholders based on the Crown subsidy, according to independent adviser Grant Samuel’s report.

Last week, investor in two tranches of foreign currency denominated Telecom bonds agreed to the deal.

Telecom’s shares were unchanged at $2.57 in trading today, and have climbed about 18% this year.


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