State to sell up to 45% of Telecom to meet demand

The Government is now expected to consider increasing the amount of shares it will sell in Telecom Eireann, after the registration period for the public closed last night showing a level of demand much greater than had been anticipated. By 5.30 p.m. yesterday, around 1.15 million people had registered and, with the offer closing at midnight, the final figure will be even higher.

The Government, which owns just over 50 per cent of Telecom Eireann, had planned to sell around 35 per cent of the company in the initial pubic offering, due to take place in early July. However, such is the demand from the public for shares that this figure may now be increased to between 40 and 45 per cent.

Much will now depend on how many of those who have registered for shares follow through and actually apply, when the offer to retail investors gets underway in the middle of June. Given that the shares are expected to rise immediately after flotation, there is expected to be a strong follow through from registration to applications to buy shares.

International experience suggests that between 15 and 45 per cent of such registrations follow through, but given the success of the flotation, it may exceed 50 per cent in the Irish case.

The Government will be under pressure to increase the amount of shares that it sells into the market, so that there is enough to give retail investors a reasonable amount, while still leaving an adequate amount for institutional investors.

While previously there were indications that the shares on offer from the Government would be split 50:50, it is now more likely that around 60 per cent will go to the public and 40 per cent to institutions. The Minister for Public Enterprise, Ms O'Rourke, and her Government colleagues will be particularly keen that as many shares as possible are given to the public to pave the way for future flotations, while still leaving the shares necessary for institutional investors to ensure the necessary liquidity of the stock on the market.

The prospectus for the flotation is now understood to be largely complete. It is expected to say that there will be no "golden share" - a share held by the Government which allows it to block any takeover for a period of years. However, there is likely to be a "standstill" arrangement for KPN, the Dutch company set to emerge as the major shareholder.

KPN is one of Telecom's strategic alliance partners and, when it exercises an option to increase its stake and buys shares held by its partner, Telia, it is likely to emerge with 35 per cent of the company. Telia is selling because it is merging with Telenor, which is itself a major shareholder in Esat Digifone, the major competitor to Eircell, Telecom's mobile subsidiary.

The prospectus is likely to say that KPN will not be allowed to increase its shareholding beyond this 35 per cent level for a period of 12 to 18 months.

A "lock-in" arrangement is also expected to apply to its shares and to those held by the Government, which will mean they will not be able to sell any further shares after the flotation for between nine and 12 months.

About 2.8 million people received an invitation to register for Telecom Eireann shares and the decision of more than 1.1 million to take up the option has been way ahead of expectations. Institutional investors are also believed to be expressing a strong interest in the flotation, which looks set to be strongly oversubscribed, provided the stock markets remain strong in the meantime.