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Telstra Sale Draws Robust Demand
Australian Telecom Shares Exceed Government's Goal, Bringing in $11.92 Billion
By Lyndal McFarland
The Wall Street Journal
Sunday, November 20, 2006

SYDNEY -- The Australian government said it raised A$15.5 billion (US$11.92 billion) from the sale of part of its stake in Telstra Corp., almost doubling its initial target and exceeding its expectations.

Demand for the offering of 4.25 billion shares in Australia's largest telecommunications company was boosted by a high dividend yield and improving sentiment toward the telecom sector globally, Australian Finance Minister Nick Minchin said. About a month ago, Canberra had expected to raise just A$8 billion.

The shares will be sold to institutions at A$3.70 apiece, a slight discount to Telstra's closing price Friday of A$3.75, but above the A$3.50 some analysts had anticipated. Individual investors will pay A$3.60 a share.

The sale caps a 10-year ambition for Prime Minister John Howard and his conservative government colleagues. Canberra first sold Telstra shares to the public in 1997, with a second parcel sold in 1999 at A$7.40 a share.

Canberra, which was advised on the sale by bankers from ABN Amro Rothschild, UBS, Goldman Sachs JBWere and Caliburn Partnership, originally planned to sell its entire 51.8% Telstra stake, but scaled back plans amid a falling share price and sliding profit at the company.

"We are all pleasantly surprised. It shows you just can't believe the polls -- just like politics," Mr. Minchin said. "The market research that was done clearly underestimated the potential."

Mr. Minchin said 60% of the shares were sold to retail investors, while 28% were allocated to local fund managers and 12% to international funds, such as Capital Group in the U.S.

ABN Amro Rothschild banker Patrick Broughton said most international buyers were existing shareholders of Telstra, with plenty of interest from Europe.

Perpetual Investments manager Matt Williams said good timing played a significant role in the deal's success.

"Globally, telcos have performed well during the sale process; equities are doing well generally; and there is a lot of money out there looking for a home," said Mr. Williams, who helps manage A$33 billion of funds.

Canberra will transfer its remaining 17% Telstra stake to an independently managed, but government-backed investment fund set up to pay government-pension liabilities.

Investors will pay for shares purchased in the offering in two installments. Retail investors will pay A$2 initially upfront, and institutions will pay A$2.10. The balance of the purchase prices will be payable by May 2008, giving shares a dividend yield of around 14% for the interim.

Write to Lyndal McFarland at