Saturday 28 October 2006

AU shares: T3 share float

No, it's not the Terminator. Here in Oz the big investment buzz at the moment is regarding the goverment sell-off of their controlling stake in our telecom monolith - Telstra. They'd previously sold off chucks in the "T1" and "T2" offers several years ago. Unfortunately, T2 was sold at the peak of the bubble, so all the "mum and dad" investors who had made money buying T1 (at $3.30 a share in 1997), then lost a bundle buying T2 (at $7.40 a share) - unless they managed to sell at the peak of around $8.00. With Telstra currently around $3.65 a share, it'll be interesting to see how sucessful the T3 float is. The government isn't selling off it's entire remaining 51.8% stake in T3 - the base offer is 2.15 billion Telstra shares, or one-third of the Government's remaining 51.8 per cent stake, with the remainder to be dumped in the Future Fund (setup to eventually pay for unfunded public service pensions).

I bought T1, and then skipped T2 (I'd read enough about Dutch Tulips to avoid the frenzy). I've now applied for $10,000 worth of T3 shares. The first installment will cost $2 per share, with the remainder (based on the institutional book-build price, minus a 10c per share retail discount, plus a 1 per 25 bonus share issue when the 2nd installment is paid...) due in 18 months time. Telstra is currently paying a large dividend, so the ROI on the initial $2 installment is around 14% pa (plus tax credits due to dividend imputation). With the 10c discount and bonus share issue, the final cost of T3 shares should be around $3.25-$3.50 a share, although the final price won't be known until after a three-day institutional book-build set down for November 15 to 17.

Telstra is currently rapidly losing revenue as customers abandon the old landline phones in favour of mobile phones, and the mobile phone business is highly competitive. Whether T3 is a "cheap" buy at even $3.25 a share will all depend on how Telstra's cost cutting program works out, and how well they funnel cash flow into new business areas.

ps. It's interesting to read some of the misinformation that gets printed in the mainstream press - The Australian newspaper (one of our major national papers) printed on 10 Oct that T3 retail customers "will receive loyalty shares - a bonus issue of 25 shares for each 100 shares they retain". A pity that the propectus actually states that the loyalty share issue is 1 share for each 25 shares retained until then final installment is paid. Just a little difference of a 4% discount vs. a 25% discount! ;)

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