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France Telecom on Wednesday announced a €3bn ($3.7bn) share issue to help fund its acquisition of Amena, the Spanish mobile telephone operator.

The capital increase – the biggest rights issue in Europe so far this year – will further dilute the French state’s 34.9 per cent stake in France Telecom, which owns the Orange mobile telephone network.

France Telecom agreed in July to buy 80 per cent of Amena for €6.4bn in order to strengthen its position in Spain.

It said at the time that it would refinance the deal through a €3bn capital increase that would either be reserved for Amena’s owners or carried out through a public offering with preferential subscription rights for existing investors. It has chosen the latter option.

France Telecom is issuing 133.4m new shares, to be subscribed for through the exercise of warrants. Investors will receive one warrant for each share. that they currently own. For every 37 warrants, they receive, they can then subscribe for two new France Telecom shares at a price of €22.63 per share between September 1 and 13. The shares had closed at €24.60 on Tuesday night.

The French state has indicated that it will not take part in the capital increase, a move that which will cause its stake to fall to 33.1 per cent, according to France Telecom. The government last cut its stake in France Telecom in June through the sale of 152m shares. However, the demand was lukewarm and the shares were sold at the lowest end of the indicated range in a deal that raised €3.4bn for the state.

The share sale announced on Wednesday was being underwritten by a banking syndicate led by ABN Amro Rothschild, BNP Paribas, Goldman Sachs, Morgan Stanley and Société Générale.

The offer is taking place in circumstances sharply different to France Telecom’s last rights issue. That record €15bn cash call took place in 2003 as part of a plan to rescue the business from menacing debts built up during an over-ambitious expansion. The €3bn rights issue would be the biggest in Europe this year and the fourth-biggest issue in the telecoms sector since the creation of the euro, according to Dealogic.

The decision to finance a large part of the Amena acquisition with equity rather than debt underlined the management’s commitment to continue to lower its debt ratios, credit analysts said.

Standard & Poor’s, the credit rating agency, said “the rapidity of the capital increase following the Amena transaction announcement is viewed positively, demonstrating FT’s commitment to protect its capital structure without using any bridge debt financing.” S&P left France Telecom’s A-rating and positive outlook unchanged.

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