Debt-ridden telecoms suffer investor lack of confidence

The debt-riddled telecommunications sector got a spanking again yesterday, continuing its steady decline of recent weeks.

France Telecom shares fell 4.5 per cent to their lowest since December 1997, while Sonera fell 7 per cent to another all-time low.

France Telecom was depressed by the possibility of relegation from the Stoxx50 index. Its market capitalisation has fallen about 80 per cent since the last index review. Deutsche Telekom fell 3 per cent to €16.42 as some of its stock overhang began to hit the market.

Yesterday was the first day of trading since the lock-up ended for shareholders acquiring stock via the VoiceStream takeover.

KPN, a share that has already fallen heavily, slipped further, even though second quarter results showed core earnings were better than expected. Ebitda earnings rose from €901 million to €929 million. However, there was a net loss before goodwill of €48 million, compared with a net profit of €68 million in the second quarter of 2000.

Investors also remained gloomy about last week's failure of merger talks with Belgacom. The shares closed at €2.95, a fall of 5.5 per cent and more than 95 per cent below its €71 peak last year.

Another telecom that beat forecasts yet saw its share price fall was Telefonica. It reported first-half net attributable profit up 16 per cent year-on-year, compared with a consensus estimate of 5.4 per cent. Ebitda earnings were up 9.2 per cent compared with expectations of 6.2 per cent. But the shares closed 4 per cent lower at €12.25. Telefonica's exposure to Latin America remains a source of anxiety for investors.

In technology shares, SAP fell 6.6 per cent to €139.25 on talk that it may lower its profit targets. There were also rumours that SAP was about to issue a convertible bond, which would put pressure on the share price. Until now SAP has outperformed other technology shares, but in the jittery atmosphere investors are beginning to worry that it, too, faces punishment. Another relative outperformer is ASML, the Dutch maker of chip-making equipment, which yesterday fell almost 5 per cent to €18.61.

IThe merger buzz at Commerzbank hardened with the investor focus turning to UniCredito, Italy's third biggest bank and widely seen as front runner in any potential deal. According to weekend press reports the two banks were deep in talks and set to announce links within weeks. There was also a widespread market suggestion that other financial institutions were on the sidelines.

As a result UniCredito ran into instant selling, sliding 2.7 per cent to €4.61 in heavy trading volume of 52 million shares. "This looks like being a lengthy and expensive bid saga. It's anyone's auction," said one banking analyst yesterday.

Commerzbank, up 2.8 per cent on Friday, shed 1.1 per cent to €27.02 in spite of an upgrade to "speculative buy" at Credit Lyonnais, which set a target price for the shares of €35.

Air France, expected to provide fresh clues to the tough trading conditions facing airlines when announcing its first half figures today, fell 3.3 per cent to €17.54.