SYDNEY: The Australian government has decided to sell A$8 billion worth of its shares in Telstra Corp. Ltd., the country's No 1 phone company. The announcement led to a dip in the share prices Monday, which reached a nine-year low at one time.
The prices fell as much as 2 per cent as investors downloaded the shares as they came to know that additional shares would come to the market in an offering for retail and institutional investors in October/November as part of the government's plan to divest its 51.8 per cent stake.
Later there was a recovery and the prices were just down 0.86 per cent at A$3.47.
The government defended its decision to divest its holding, reducing it by a third and place the remaining in its Future Fund, a fund set up to cover public service pensions. But it will be held in escrow for two years.
It said the sale structure will allow retail investors to pay for their shares in two installments over 18 months and they will be entitled to the full 28 cents dividend that the company plans to announce for fiscal 2007.
The government announcement did not say how many of its 6.446 billion shares in the company will be offered, but according to rough calculations, A$8 billion worth of shares could be around 36 per cent of its holding.
Meanwhile, the Australian competition regulator, Australian Competition and Consumer Commission, rejected Telstra's application to charge monthly rate of $30 per user on its rivals who access its network. This access fee, paid by operators such as Optus, to use the unbundled local loop -- the copper line between a subscriber's premises and the phone exchange, has been a key component of Telstra's revenues.
Telstra is expected to contest this decision.
Australia's finance minister Nick Minchin, who is overseeing the sale, said the government has acted in accordance with advice it was given by professional consultants, UBS, Goldman Sachs JBWere and ABN AMRO Rothschild. He said the consultants as well as the trend in the market suggested the current price of Telstra reflected the fair price.
Minchin did not, however, indicate the sale price, except saying A$8 billion will be sold.
Australia's prime minister John Howard had announced the government decision on 25 August.
