Over 600 institutional investors from all over the world will be shareholders in Telecom Eireann, and one-third of those institutional shares will be held by Irish institutions. Overall, just over 22 per cent of Telecom shares will be held by institutional investors although this proportion is expected to rise gradually over the next few weeks as many private investors take profits from their investment and sell their shareholdings.
The head of investment banking at AIB Capital Markets, Mr Colm Doherty, said that the institutional roadshow over the past few weeks led to applications for shares from over 1,200 different institutional investors and the institutional offer ended up being 12 times oversubscribed.
Of this 1,200, less than half have actually received an actual allocation of shares with AIB and Merrill Lynch, the global co-ordinators to the IPO, trying to ensure that Telecom starts life with the highest quality share register.
When it came to selecting institutions to receive an allocation of shares, Mr Doherty said preference was given to institutions who have had a history of investing in Irish equities, institutions who have had a history of investing in telecom stocks and also institutions who would be active in the market for Telecom shares when they begin trading from today.
Of the 22 per cent of Telecom that will initially be held by institutions, around 7.3 per cent will be held in Ireland, 5.3 per cent in the UK, 4.7 per cent in continental Europe, 4.4 per cent in the US and 0.4 per cent in other countries.
The 487 million shares allocated to institutions has not, it is understood, been divided equally between the 600 institutions who have received shares. But this still means that the average allocation per institution is well under one million shares and market sources believe that many of those institutions who have only received a small allocation will be particularly in the after-market to increase their shareholding.
One brokers told The Irish Times that already they had received bids at £3.70 (#4.70) - 22 per cent above the offer price. At this level, the broker said, many foreign institutions might be tempted to take a profit on the shares and sell to Irish institutions keen to build up a heavier weighting in Telecom shares. The broker added, however, that £3.70 is expensive for Telecom and it will be difficult for the market to sustain that level into late next week when retail investors will be free to sell their shares.
Telecom Eireann, in particular, will be hoping that there will be a gradual shift in the balance between the institutional and retail investors. At the beginning of trading today, institutions will hold 22 per cent and retail investors just under 27 per cent.
"I think the company would like to see those positions reversed and probably like to see the institutional proportion go over 30 per cent," said one market source.
Irish fund managers yesterday expressed little surprise at the pricing of the Telecom IPO, and most felt that the one-third of the total allocation to Irish institutions received was fair. "They had to strike a reasonable balance and this seems OK," said one fund manager, who added that he would be active in the market looking for more shares.
"We might be operating in the euro zone, but Telecom accounts for over 12 per cent of the Irish market and is a proxy investment for the Irish economy. We have to have a bigger exposure," said the fund manager. He declined to say how much he would be prepared to pay in the market for Telecom shares, but said that an early premium of up to 15 per cent of the shares is likely.
"We may have to pay more than we might want to in the early days to beef up our holding," was the comment from one fund manager.,
Other fund managers cautioned that while Telecom Eireann is undoubtedly a solid investment at these levels, the medium-term to long-term upside is limited given that the shares are being floated at a significant enterprise value to EBITDA premium to a host of established. European telecom shares.
BCP Stockbrokers has set a 12 month price target of #4.30 (£3.39) for Telecom Eireann shares. If this proves to be the case then Telecom may settle down to a steady trading range 10 per cent above the IPO price once the initial flurry of institutional stake building over the next few weeks dies down.
