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The Australian government is planning a series of measures to lure sceptical foreign investors to next year's planned A$32bn (US$24.7bn) privatisation of Telstra.

Nick Minchin, finance minister, said Canberra would consider a number of incentives, including lifting the foreign ownership cap, “to maximise foreign demand for the sale” of the government's 51.8 per cent stake, known as T3.

“If we were to decide to sell all of the shares in one go, foreign buying would become very important,” he said. A single-tranche sale is the government's preferred option.

Foreign investors have shunned previous Telstra offerings and own only 6 per cent of its shares.

The government expects T3 to draw strong demand from domestic retail investors. But analysts believe the successful divestment of such a large holding in Australia's dominant telecoms group would be difficult without foreign institutions.

With an election due in 2007, John Howard, prime minister, cannot afford failure in a sale that has triggered protests within his coalition and is opposed by a majority of Australians.

Mr Minchin said the Cabinet, which is due to discuss the Telstra sale on Tuesday, would consider lifting the current 35 per cent foreign ownership cap on Telstra to 49 per cent if it helped to stimulate overseas demand.

People familiar with the situation said Telstra could go on international “roadshows” even before the deal is launched in an attempt to allay investors' concerns over valuation and strategy.

Mr Minchin indicated the government would also offer incentives to retail investors. Many have lost out because of the slide in Telstra shares since the T2 sale in 1999.

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