Canberra to lift size of A$8bn Telstra sale

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The Australian government is likely to increase the size of its planned A$8bn ($6.1bn) offering in Telstra, the country’s dominant telecommunications company, in anticipation of strong demand from institutional investors.

Nick Minchin, finance minister, told parliament on Thursday that Canberra was ready to increase the offer “to meet the demand” from institutions. He also anticipated that retail investors had fully subscribed to their portion of the share sale following a “surge of applications” in recent days.

Although the details of the retail subscription will only be revealed on Sunday, Mr Minchin forecast that the A$8bn target had already been exceeded by Thursday’s closing of the retail offer on Thursday.

Institutional investors will have a chance to apply for Telstra shares from Wednesday to Friday of next week. Separately, about A$400m of shares have already been sold to investors in Japan, the only foreign market targeted by the government for its share sale. The offering will then be priced on Sunday and the new shares will start trading on November 20.

The government has been under pressure to raise the offer to around A$12bn from bankers, who have argued that institutional investors are under-represented in a company that has some 1.6m individual shareholders following two previous government share sales.

The bankers have also pointed out the relatively strong performance of the share price in recent weeks, after falling to nine-year lows in August. Telstra shares fell on Thursday by 1.5 per cent to A$3.91.

The government already agreed last month to include a greenshoe option that could increase the share sale to A$9.2bn. Although Canberra wants to optimise the size of the offering, it has been very wary about yielding to pressure from the banks, which are hoping to increase fees from the share sale.

The divestment of Canberra’s remaining 51.8 per cent stake in Telstra is a politically sensitive issue that has already triggered delays and controversy.

Furthermore, a share sale of A$8bn would already be the largest in the telecommunications sector since France Telecom’s offering in 2003 and the debt-free federal government is not facing the kind of budget difficulties that would demand higher proceeds from the Telstra share sale.

Mr Minchin said on Thursday the government’s priority was not to maximise the offering but to ensure “an orderly after-market.”

He added: “In fact, there are good reasons to prefer that a number of those investors will have to buy shares on the market rather than meeting their demand fully in T3.”

The share sale is known T3 because it is the third tranche of shares sold by the government in Telstra, which was listed in 1997.

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