Telecom sweetens bond deal ahead of separation vote

TIMETABLE

Debtholder vote
Sept 28: Deadline for receipt of proxy voting forms
Sept 30:  Debtholder meeting: proxies plus votes at meeting totalled; 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 totalled; result expected mid-afternoon

Telecom has doubled debtholders’ incentive to vote in favour of separation at the company’s annual meeting, scheduled for Friday September 30.

In a statement issued to the NZX this morning, Telecom said the consent fee it is offering to holders of $541.7 million in "Telebond" stock and other holders of NZ-dollar denominated stock issued by Telecom NZ Finance  has increased from 0.25% to 0.50% of the scheduled redemption amount of stock held.

Additionally, if Telecom’s credit ratings from Standard & Poor’s falls to BBB+ and its Moody’s rating to Baa1, the interest rate applicable to the stock existing at the date of the demerger increases by 0.50% per annum.

Telecom spokesman Ian Bonnar confirmed that both agencies would have to cut their ratings for the 0.50% boost to kick-in in each instance.

Putting on the squeeze
Telecom treasurer Andrew Hopkinson told NBR the Telebond deal had not been sweetened because of lethargic reaction from retail investors (who were sent proxy forms last week and have until September 28 to mail in their votes).

Rather, the company was reacting to feedback from major stock holders, according to a statement from Telecom CFO Nick Olson.

75% of bondholders (with a 50% quorum) must vote in favour of Telecom separating for the de-merger to go ahead (splitting off its Chorus division into a separately listed company is a condition of Telecom’s Crown fibre deal with the government).

The deal must also be approved by 75% of shareholders who chose to cast a vote.

Proxy voting forms are being sent to shareholders over the next couple of days.

No plan B
With neither the government nor Telecom offering any Plan B in the event of a "no" vote from debtholders or shareholders, many Telecom investors may naturally gravitate toward voting in favour of a split.

The immediate issue is whether enough debtholders will vote for Telecom to reach its required 50% quorum.

Will a 1% one-off payment will be enough to encourage Telebond holders (many of whom are ma-and-pa investors) to get off the couch and mail in their votes?

Telecom shareholder info booklet "ridiculous"
Meanwhile, the Shareholders Association has labelled the size of the documentation required to be distributed to Telecom shareholders as "ridiculous".

Chairman John Hawkins described the 500-plus page booklet as an extreme example of "disclosure gone mad".

Hawkins said he did not blame Telecom for the situation. This has been forced on them by regulatory requirements. The company has satisfied us that this was the minimum they were legally required to distribute.

"That just goes to prove the current law around this issue is an ass", Mr Hawkins said.

The association said shareholders want clear and concise documents that highlight the basic issues.