Capital raising hurts TEL stock

By Phil Boeyen, ShareChat Business News Editor

Wednesday 23rd May 2001

Telecom shares have been hit after the company announced it is raising $500 million through a placement of new shares with institutional investors.

The telco says that overnight is has entered into arrangements for the new equity with institutional investors in New Zealand, Australia and internationally.

Under the arrangement 91 million new TEL shares will be issued at a price of $5.50 per share, a discount of around 35 cents to yesterday's closing price.

The dilution and discounted price have been met with a resounding thump from the market which has dropped the shares 32 cents to $5.60 following the news.

Chief financial officer, Marko Bogoievski, says the company has taken an opportunity to raise new equity and strengthen its balance sheet.

"This is a prudent course for the company as we invest for growth.

"A share placement of this type is currently the most efficient means of strengthening our balance sheet and ensuring Telecom has the financial flexibility to support its growth strategies. The proceeds will be used to repay short-term debt."

Telecom says the new shares will not be registered under the United States Securities Act and may not be offered or sold there without registration or an applicable exemption from registration requirements.

Following the placement Telecom will have around 1.85 billion shares on issue.

Earlier this month Telecom announced that software giant Microsoft would be investing $300 million in the company as part of an agreement to combine their New Zealand web portals.

However the telco itself is also about to spend some serious money, investing A$250 million for a 19.9% stake in the new Hutchison 3G venture in Australia, with a commitment for a further A$150 million.

Telecom also recently canned the rollout of AAPT's CDMA network in Australia, on which more than $150 million had already been spent.

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