Telecom bondholders vote for split

UPDATED Friday Sept 30: Telecom bondholders have voted overwhelmingly in favour of Telecom splitting into two separately listed companies.

Shareholders also have to approve the Chorus spin-off in a vote to be tallied on October 26.

At a meeting at Telecom's Auckland headquarters this morning, holders of $435,374,978 million in stock voted in faour, and holders of $3000 against.

Spoonful of sugar ... and another
With no plan B, and no organised opposition, the result was never in question.

But with a 50% quorum required for the vote to count, the key issue was whether enough mum and dad investors - prevalent among holders of the company's $541 million in Telebonds and other NZ dollar-denominated stock -  would be motivated to get off the couch and post in their votes.

Bondholders were initially offered a 0.25% top-up on their bonds' redemption value. Last week, that was sweetened to 0.5%, with up to another 1% in the offing if Moody's and S&P both downgraded the company's credit rating.

Large stockholders had also pushed for extra sugar.

Investors couldn't simply pocket the cash if a yes vote went through. Cannily, Telecom offered the one-off payment only to bondholders who participated in the ballot.

The move saw 80% vote (that is, holders of $435 million out of $541 million in NZ dollar-denominated stock) well ahead of the required 50%.

Telecom shares [NZX:TEL] were up 0.39% to $2.56 in midday trading as the news was announced.
 

Analysts weigh odds ahead of Telecom split vote Friday

Thursday Sept 29: Telecom bondholder proxy voting closed yesterday. On Friday, the postal votes will be counted, along with those who turn up live for a meeting.

At least 50% of bondholders must participate for the vote to count; and of that quorum, 75% must vote in favour of spinning off Chorus (a pre-condition of participation in the government's $1.35 billion Crown Fibre contract). Key to the outcome is how holders of  of $541.7 million in "Telebond" stock will vote. Many are mum-and-dad investors.

Analysts see the vote going in favour of a split.

"My understanding is it's likely to be a done deal," Deutsche Bank analyst Geoff Zame told NBR.

Mr Zame cited four reasons: the fact Telecom had recently sweetened its financial incentive for bondholders to vote yes (from a one-off payment of 0.25% to 0.5% of their bonds' redemption value- with more in the offing if Telecom's debt is downgraded); the key element that bondholders only get the 0.5% payment if they vote; the likelihood that many of the bonds are held by custodians, and the fact financial analysts would be motivated to call their clients.

Forysth Barr senior analyst Guy Hallwright said he did not anticipate any issues with the bondholder vote going through - or the shareholder vote, which will be counted on October 26.

Both bondholders and shareholders must vote "yes" for Telecom's split to go ahead. There is no quorum for the shareholder vote.

TIMETABLE

Debtholder vote
Sept 28: Deadline for receipt of proxy voting forms
Sept 30:  Debtholder meeting: proxies plus votes at meeting totaled; result expected to be announced

Shareholder vote
Oct 25: Deadline for receipt of shareholder proxies
Oct 26: Telecom Annual Meeting; proxies plus votes at meeting totaled; result expected mid-afternoon

Telecom will remain listed throughout the demerger process. The spun off "New Chorus" will debut on the NZX for regular trading on November 25.