France T?l?com sets bond record

France Télécom yesterday launched the largest ever corporate bond issue, aiming to raise some $16.4bn (£11.19bn). The move will help reduce its estimated €60bn (£38bn) of debt, run up as it spent heavily on licences for the next generation of mobile phones.

The bond issue is more than double the size initially expected with dealers suggesting that investors had been tempted because the bonds were being offered at a generous discount to existing bonds in leading telecom companies.

The deal will overtake the previous record corporate bond issue of $14.6bn from Deutsche Telekom.

As well as offering the bonds at a discount to prevailing levels in the secondary market, France Télécom is giving in vestors protection against possible downgradings of its credit ratings.

Like other big telecom companies, France Télécom, which recently floated 15% of its mobile phone operator Orange, has run up heavy debts through acquisitions and the purchase of third-generation mobile phone licences.

Although a 3G presence in leading European telecoms markets was initially seen as a must-have capability, the costs have since led investors to worry about the speed and extent to which the new services will be able to generate profits.

Share prices have taken a hammering and some companies have seen their debt rating downgraded. France Télécom, headed by Michel Bon, has seen its shares fall to less than a third of their peak a year ago. Shares in BT have fallen almost as sharply while Deutsche Telekom shares have been hit even harder.

Last month France Télécom's sale of a stake in Orange fell victim to the downturn in sentiment, the price having to be cut to ensure investor support. The sale raised just over €7bn, well below the target.

France Télécom is expected to use the proceeds from the bond issue to refinance short-term debt and bank facilities.

The issue will allow France Télécom to extend the maturity of a tranche of short-term debt. "It's prudent treasury management," according to Duncan Warwick-Champion at rating agency Standard & Poor's.

He said the decision to build in protection for investors in the event of debt being downgraded was becoming standard for the industry.

"Over the last six to nine months it is something the in vestment market has required. Given the current negative outlook in the European telecoms sector, companies which don't have credit protection measures find it hard to sell their debt."

• Britain's telecom regulator, Oftel, said yesterday it had revoked an order requiring BT to provide its call minder voice messaging service on a wholesale basis to other operators.

The order, made in 1997, meant BT had to offer its call minder products to other operators and service providers on the same terms and condi tions and at the same price as to its own business.

"Changes to BT's licence and internal procedures mean that the order is no longer required and Oftel has taken the decision to revoke it," said David Edmonds, director general of telecommunications.