France Telecom's Bond Sale Raises US $16.4 Billion
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[London, ENGLAND] Investors, unable to resist yields as high as 8.5 percent, purchased US $16.4 billion of France Telecom's debt in a bond sale that broke all records this week.
Originally, France Telecom had planned for between US $7 billion and US $8 billion, but with demand so high the French telco was able to double the amount. In the event, investors on both sides of the Atlantic bid US $32 billion for the bonds, nearly two-thirds coming from the United States.
Jean-Louis Vinciguerra, executive vice president of France Telecom, said his company was very happy with the success of the operation which demonstrated the high credit standing of France Telecom.
Like BT and Deutsche Telekom, France Telecom incurred massive debt by purchasing third generation mobile licenses in preparation for running mobile Internet services. Its bond sale actually topped the figure of US $14.6 billion achieved last June by Deutsche Telekom in a similar debt restructuring move.
According to analysts, the price of France Telecom's bonds should rise quickly in coming weeks, especially as yields were almost at junk bond levels while the telco still enjoys investment-grade credit ratings, despite recent problems.
Seven different tranches were offered in the bond sale, four of them denominated in U.S. dollars, two in euros, and one in pounds sterling.
While many of the dollar-denominated bonds are five- and ten-year notes offering a slightly lower rate, 30-year bonds worth US $2.5 billion were sold -- and they carry a yield of 8.5 percent, 3.08 percentage points more than U.S. Treasuries.
This week's bond sale is the first time that France Telecom has accessed the American bond market with such a huge transaction.
It remains to be seen whether the new investors will stick with the bonds or "flip" them for short-term profits.