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Last updated: September 1, 2005 4:16 pm

Canberra paves way for Telstra IPO

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Legislation to launch the proposed A$30bn-plus (US$22.7bn) sale of the state’s 51.8 per cent stake in the dominant Australian telecoms carrier Telstra, which could be next year’s biggest global IPO, will go before parliament next week.

With leading investment banks readying their pitches to manage the sale, dubbed T3, the government is eager to gain approval within the next few weeks, despite questions over how – and even if – the sale will proceed and what kind of regulations the Competition and Consumer Commission watchdog will impose on Telstra.

Banks tendering for roles in the Telstra sale - joint global co-ordinators and membership of an institutional selling panel - have been given until today to agree to the sale’s conditions, and will have until September 27 to lodge tenders. The government is expected to appoint three, possibly four, global co-ordinators and at least eight banks and brokers to oversee the sale to foreign and domestic investors.

People familiar with the government’s thinking say candidates for global co-ordinating roles are UBS, which carried out a scoping study for T3, Macquarie Bank, Australia’s largest investment bank; and Goldman Sachs JBWere. All three were instrumental in the previous two sales of the government’s Telstra stakes in 1997 and 1999. CSFB is also thought to be still in the running. ABN-Amro Rothschild, Citigroup, Deutsche Bank and JPMorgan are seen as strong contenders if the government appoints a fourth co-ordinator.

The T3 legislation will include bills on the government’s commitment to spend about $3bn on upgrading services throughout Australia. The crucial regulatory change, however, involves plans to separate Telstra’s operations into three units.

“It will supersede the cumbersome and highly unsatisfactory accounting separation model that Telstra certainly didn’t like, and the regulator and competitors didn’t think worked very effectively,” communications minister Helen Coonan said.

The parliamentary vote would follow months of political in-fighting. within the governing coalition of Prime Minister John Howard over tougher service obligations to be imposed on a fully privatised Telstra, especially in the outback.

Mr Howard’s Liberal-National coalition controls both houses of parliament, but coalition members representing Australia’s sizeable rural lobby have pushed for stricter rules to ensure the country’s main telephone services provider adheres to its nationwide service obligations. They have also insisted that Telstra must offer rival telephone companies access to local phone lines.

Sol Trujillo, Telstra’s chief executive, fanned critics’ concerns by arguing more regulation could cost Telstra up to A$1bn and impede its profitability. Mr Trujillo is now working on a strategic plan to be issued in late October. His report is expected to outline Telstra’s capital spending plans as well as how the company will fulfil its three-year plan to return to shareholders $1.5bn a year in capital.

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