Vodafone has placed £2.88bn (US$4.11bn) of mandatory convertible bonds which, when converted into shares, correspond to about 5% of the company’s share capital. The bonds will be issued in two tranches: one with an 18-month maturity and 1.5% coupon and the other with a three-year maturity and 2% coupon.
Vodafone (LSE:VOD) has placed £2.88bn (US$4.11bn) of mandatory convertible bonds which, when converted into shares, correspond to about 5% of the company’s share capital.
The UK-based telco, which announced the planned issue yesterday, said today that the bonds will be issued in two tranches: one with an 18-month maturity and the other with a three-year maturity.
JP Morgan and Morgan Stanley, the transaction arrangers, have been allocated 45% of the total bonds to be issued.
Vodafone, which his week agreed to pay Liberty Global (NASDAQ:LBTYA) €1bn (US$1.1bn) as part of their Dutch JV pact, may convert the bonds either by allotting and issuing new ordinary shares or transferring existing shares from treasury.
The initial conversion price will be based on the higher of either Vodafone’s closing share price on the London Stock Exchange on 17 February (£2.173) or the arithmetic average of the daily volume-weighted average prices of an ordinary share on the LSE over three consecutive trading days from 19 February. Vodafone will announce the final price after trading closes on 23 February.
As previously reported, the bonds will be issued at par. Settlement and closing are expected on 25 February.
The coupon for the 18-month bonds has been fixed at 1.5% per annum and, for the three-year bonds, at 2%.
The bonds, apart from the value of coupons payable, are expected to be accounted for as equity. They will represent subordinated debt, and Vodafone, of which Vittorio Colao (pictured) is CEO, will have the option to defer coupon payments.
Bondholders can convert their bonds into shares at any time from 6 April.
Option strategy to hedge exposure
Vodafone said it intends to hedge its exposure under the bonds to any future changes in its share price by an option strategy consisting of the purchase of cash-settled call options from, and the sale of cash-settled options to JP Morgan and Morgan Stanley.
“The option strategy is designed to hedge the economic impact of share price movements during the term of the bonds,” the telco said. “Should Vodafone decide to buy back ordinary shares to mitigate the dilution resulting from conversion of the bonds, the hedging strategy is intended to provide a hedge for the repurchase price.”
The options are expected to be settled on 55 consecutive trading days after the bonds’ maturity dates at the arithmetic average of the daily volume-weighted average prices of an ordinary share on the LSE, BATS, Chi-X and any other exchange determined at the time.
JP Morgan Securities, Morgan Stanley and affiliates are expected to enter into transactions to hedge their positions under the call and put options.
Potential share repurchases
Vodafone may conduct share buybacks before or after the bonds mature.
The company said it may consider using the proceeds of any monetisation of Verizon loan notes, which it received as part of the consideration for the 2014 sale of its stake in Verizon Wireless, to fund share buybacks of ordinary shares.
Vodafone intends to apply for the bonds to be admitted to trading on the Irish Stock Exchange’s Global Exchange Market or other recognised stock exchange.
