Telekom Austria has placed a landmark €600m hybrid bond in a transaction that produced an order book of about €4bn.
The subordinated bond carries a coupon of 5.625% and has perpetual maturity, the telco announced today. The first redemption can take…
Telekom Austria has placed a landmark €600m hybrid bond in a transaction that produced an order book of about €4bn.
The subordinated bond carries a coupon of 5.625% and has perpetual maturity, the telco announced today. The first redemption can take place in five years’ time.
The coupon rate will be reset on 1 February 2018 and, from then on, every five years. The exact rate will be established two days before each reset date. In addition, on 1 February 2023 and 1 February 2038, there will be coupon step-ups of 0.25% and 0.75%. The company has the option to defer coupon payments.
The placement follows a road-show in Germany, Great Britain and the Netherlands and Telekom Austria said the bonds were placed primarily with investors from Germany, Great Britain, Italy, Switzerland, Austria and France.
Telekom Austria CFO Hans Tschuden noted that the issue marks the first hybrid bond transaction in the European telecoms sector.
“This transaction strengthened the capital structure of Telekom Austria Group while proactively securing its solid investment grade rating,” he said. “This underlines the rating’s central role in [the group’s] finance strategy.”
The bond proceeds are to be put toward the company’s €390m acquisition of Orange Austria’s Yesss! subsidiary and other assets – a requisite for Hutchison’s recently-closed Orange takeover deal – and general corporate purposes.
Before the placement, Moody’s assigned the issue a provisional Baa3 rating, while Standard and Poor’s rated it BB+. In today’s announcement, Telekom Austria said it expects ratings agencies to consider half the bond as equity.
Moody’s provisional rating falls two notches below Telekom Austria’s senior unsecured rating of Baa1. The agency said this difference reflects the “deeply subordinated nature of the hybrid debt” along with the facts it has perpetual maturity, allows the company to defer coupons, has no coupon step-up for the first decade and none beyond 100 basis points, and has a 500 basis point step-up upon a change of control.
“The issuance of the hybrid debt, together with the group’s recently announced cut in dividends, partially mitigates the negative pressure on financial ratios and the developing liquidity constraints,” the agency said. “It is in line with Telekom Austria’s expected funding plans to comfortably address the combined acquisition of Yesss!, other assets and [upcoming] spectrum licences.”
