T3 Relies On Mums And Dads

Sydney Morning Herald

Monday August 28, 2006

Matt O'Sullivan, Kate Askew and Lisa Murray

THE Federal Government is relying on retail investors to pick up the bulk of its $8 billion public Telstra share sale. The rest will go to Japanese buyers and local and overseas institutions.

The Herald understands the Government plans to sell $5 billion to $6 billion of Telstra shares to retail investors and about $500 million in a public offering to Japanese investors. The remaining shares will be sold to institutions.

It is understood existing shareholders will be offered one free share for every five or six they own. Brokers expect the retail offer to be priced at $3.10 to $3.30.

"It seems a sensible way to dispose of the shares," said Perpetual's head of Australian equities, John Sevior. "The question for the investor is to assess whether the shares represent good value.

"On a short-term view they'll be yielding 12 to 13 to 14 per cent ... that's an attractive yield against an interest-rate investment."

Advisers to the T3 sale will tender for retail stockbrokers to help sell the offer in the next 10 days. The Government is also considering appointing another global co-ordinator to assist UBS, ABN Amro and Goldman Sachs JBWere.

Future Fund chairman David Murray will also begin nutting out a mandate for the $14.5 billion Telstra shares he will inherit as part of the $22.5 billion sale.

Telstra shares are expected to drop by up to 15c, or more than 4 per cent, to as little as $3.35 today amid uncertainty about the price of the T3 offering.

Pressure on the share price is expected to remain beyond the sale because the Future Fund wants to be able to offload most of its stake as soon as possible. It will not seek to appoint its own representatives to the board.

"The shares should be transferred to the Future Fund on the basis they are sold over time so that the proceeds go towards the long-term investment objectives of the fund," Mr Murray said.

He said parking the asset for some other public policy reason was not consistent with the fund's long-term objectives.

Macquarie Equities' private client adviser, David Halliday, said Telstra's share price would be under pressure "right until we get the third tranche away".

A lack of buyers and institutions taking advantage of any price arbitrage would be expected to lower the price today but Mr Halliday said it was difficult for brokers to ascertain the magnitude because of the "scant detail".

"At the very least there is going to be a lack of buying and that will produce a price fall," he said.

Investors can expect to receive prospectuses after the chief executive, Sol Trujillo, briefs investors on his long-term strategy on October 6 in Sydney.

The sale will occur about a month later. Retail investors will be offered shares before a four-day institutional book-build. The listing is planned for a Monday.

Chris Mackay, a member of the T3 joint co-ordinators panel, said the $8 billion sale would not overwhelm the market because institutional investors had underweight positions in Telstra.

He said Telstra's balance sheet was "terribly strong", making it one of the world's top-rated telecoms. "What we have seen in recent months is a number of value investors coming on the register."