Valentia Telecommunications - the parent company of Eircom - has increased the financial incentive being offered to bondholders in return for supporting its planned flotation. John McManus reports.

Bondholders will now get a payment of €20 for every €1,000 worth of debt they hold, if they agree to a change in the covenants covering the bonds. The previous offer had been a maximum of €3.75 per €1,000.

The change - which will allow the company pay dividends - is considered a pre-requisite for a successful flotation. Eircom has around €1 billion in bonds outstanding and the improved incentives will cost the company around €20 million.

The company has also indicated to bondholders that some €300 million of the proceeds of the initial public offering (IPO) will be retained by the company. Some €250 million is expected to be used to repay debt, which would ease the strain on the companies finances, which currently makes dividend payments difficult.

Company sources said that, following the discussion with bondholders which led to the new terms, the company now had sufficient support from bondholders to proceed with the flotation. A final decision is expected to be taken shortly by Valentia.

The bulk of the money raised through the IPO, which is expected to value Eircom at more than €4 billion, will go to the exiting shareholders. The main beneficiaries being Providence Equity Partners and Soros Private Equity, which have 48.3 per cent and 19.5 per cent of the company's A ordinary shares respectively.

Sources at the company said the additional costs of the payment to bondholders will be partly offset by savings on the annual interest bill on the companies bank debt of €1.2 billion, which is now fully secured.