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Another slice of telecommunications stock has found its way into the market, with the French government’s placing of up to 299m shares, or 12 per cent of France Telecom, at a price of €18.95-19.25. That, however, still leaves perhaps €27bn of overhanging European telecoms stock held by governments and other large shareholders and likely to be sold soon.
The biggest remaining stake is in Deutsche Telekom, but France Telecom itself is hardly clear of overhangs. The government says it plans no further sales for at least nine months, but soon it will want to offload the rest of the 638m shares it acquired in last year's rescue rights issue.
This leaves the telecoms sector in an anomalous position. European fixed-line operators boast an average free cash flow yield of more than 11 per cent. Dividends have been raised, and some companies are buying back shares, yet investors are being asked to put more money back into the sector.
Telecom managements, meanwhile, still scarred by their near-death experiences in 2001-02, remain keen to conserve cash. France Telecom is even issuing a new €1.15bn convertible bond, though it says it aims to use the proceeds to retire other more expensive debt. There is no sign yet of an appetite for resuming the value-destroying acquisitions that were once the sector's hallmark. Its increasingly undergeared balance sheet, however, cannot fail to arouse the concern that it might once again take that path.