Euro Carriers Line Up for IPOs

2004 looks set for a resurgence in telecom IPOs in Europe, with the national carriers in Belgium and Ireland, Belgacom and Eircom Ltd., set to list their shares in the coming months.

Europe has already seen one highly successful IPO by a service provider this year (see Investors Go Mad for Free Shares), and the investment markets are "swiftly recovering," according to Camille Mendler, a European telecom strategies director at the Yankee Group. "Confidence in the technology sector is returning," she says. "Any IPOs would probably go very well. There's definitely interest in telecom investments."

Belgacom announced its intention to list a minority holding late last year (see Belgacom Announces IPO), prompting a downgrade by Standard & Poor’s, which fears the operator may become more aggressive financially (see S&P Downgrades Belgacom). The shares are due to list on the Premier Marché of the Euronext Brussels stock exchange before the end of March. The flotation could value the operator at up to €11 billion (US$13.8 billion), analysts believe.

The Belgian government will hold on to 50 percent plus one share following the IPO, while current minority stakeholders -- TDC Tele Danmark A/S, Singapore Telecommunications Ltd. (SingTel), and SBC Communications Inc. (NYSE: SBC) -- are to divest their combined 49.9 percent stake. Belgacom is to buy back about 10 percent and float the remaining 40 percent.

The Belgian operator last week announced a net profit of €172 million ($216 million) for 2003, down from €1.14 billion ($1.43 billion) in 2002. But the operator says that after excluding one-off items, its net profit would have risen 35 percent to €764 million compared with €565 million (once 2002 figures are calculated using new International Financial Reporting Standards rules).

Belgacom noted strong growth in mobile and broadband, where its DSL customer base grew by nearly 52 percent to 785,000.

Eircom's IPO would mark the return to the stock market for Ireland's national operator. It was acquired for €3 billion in 2001 by Valentia Telecommunications, a private consortium that includes Goldman Sachs & Co., Providence Equity Partners Inc., and Soros Private Equity Partners. It was previously traded on the Irish, London, and New York Stock Exchanges under the symbol EIR and was the first European incumbent to be acquired by private investors.

Now that consortium is considering a return to the market, with financial analysts believing it to be worth up to €4 billion. The operator currently confirms only that the board is considering a flotation, saying that a final decision has not yet been taken. But analysts expect a move later this month, and Standard & Poor's has put Valentia "on CreditWatch with negative implications" following the company's request to bondholders that it be allowed to pay dividends in the event of an IPO (see S&P Puts Valentia on Watch Negative).

Yankee's Mendler believes this is a good time for carriers to raise money from shares issues and by issuing bonds, and that the many European incumbents still controlled by their national governments would benefit from a minority placement at the least. "Operators need to be at least partly privatized to be taken seriously. BT has benefited from its privatization," she notes. "It has made it much more competitive and focused on customer needs."

The European Commission agrees and is keen to see various European governments, such as those in the Netherlands and Spain, give up their so-called "golden shares" in strategic operators. The EU, which believes such state involvement deters foreign investment, has already initiated legal action against the Dutch government for its retention of a golden share in national operator KPN Telecom NV (NYSE: KPN). The Dutch, however, have refused to remove their finger from the telecom investment dike (so to speak).

— Ray Le Maistre, International Editor, Boardwatch

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