France Telecom goes for 'mother of all bond deals'

France Telecom is hoping to raise $16bn by setting in motion one of the biggest corporate bond deals in history. One bank source close to the situation described the move as "the mother of all bond deals".

The deal offers France Telecom a way to spread its mounting debts as it struggles to meet the cost of 3G licences and to recover from the disappointing flotation of Orange. Nigel Deighton, analyst at Gartner Group, said: "It's fairly clear that operators went on a spending spree with 3G and are now suffering from the hangover from the night before. The euphoria from open ended auction is long gone and making money is not a foregone conclusion." He claimed disappointment over Orange's IPO has forced the telco to look elsewhere for funding as investor sentiment turns sour. France Telecom had hoped to use the Orange IPO to raise E70bn (£42bn) to E80bn (£48bn) to pay off current debts. Instead, it only raised E48bn (£31bn). Gary Jenkins, head of credit rating at Barlays Capital, agreed. "The Orange IPO didn't go as well as France Telecom had hoped and they do need to raise more money." However, France Telecom claimed the bond issue was not related to its loss over Orange. A spokesman said: "It's simply a way to transfer short and mid-term debts into long term debts. It changes the way we pay existing debts. We need to manage the general maturity of our debts." Barlays Capital's Jenkins claimed the deal proved there was still value to be gained in the telecoms market despite recent depressed stocks and a credit rating downgrading from Moody's. "This shows that telcos still have a lot of money to borrow and the bond market is comfortable with that. For investors there is still value in telecoms and this deal is priced to sell. It is also a step up in spread terms from previous bond issues." The deal is being underwritten by Morgan Stanley Dean Witter, Credit Suisse First Boston, BNP Paribas and Salomon Smith Barney. For related news, see:
3G rollouts: Better late than billio