AT&T Joins Telstra in Selling Euro Bonds in Telecom Debt Surge

AT&T Inc. (T) and Telstra Corp. (TLS) are the first telecommunications companies outside Europe to sell debt in the region’s common currency this year.

AT&T, the biggest U.S. carrier, is selling benchmark notes due 2023 in its first sale in euros since December. Telstra, Australia’s biggest phone company, is marketing 1 billion euros ($1.3 billion) of 10-year notes in its first transaction in the currency in a year, people familiar with the deals said.

Global phone carriers are flocking to European debt markets to raise money cheaply, as yields drop to near December’s record low of 1.7 percent, Bank of America Merrill Lynch’s Euro Industrials Index shows. Telecommunications firms have sold 800 million euros of notes this year, according to data compiled by Bloomberg.

“Today’s issuance from Telstra and AT&T is all about diversification of funding sources,” said Sam Morton, an analyst at Mizuho International Plc in London. “It is natural for Telstra to seek finance overseas as the depth of its local market isn’t sufficient to handle all of its refinancing requirements. AT&T is an extremely large issuer in domestic benchmarks so it makes sense for it to raise money overseas.”

Telecom Sales

AT&T, which carries ratings of A3 by Moody’s and an equivalent A- by Standard & Poor’s, is marketing bonds due 2023 to yield 85 to 90 basis points above the swap rate, according to a person familiar with the sale. AT&T is also planning a 250 million-euro increase to its 3.55 percent bond due 2032, the person said. The company last issued euro-denominated bonds on Dec. 11, when it sold 1 billion euros of the 3.55 percent notes.

Telstra’s 1 billion euros of notes due Sept. 2023 may yield 80 basis points above mid-swaps, the lower end of its guidance, according to a person familiar with the matter. The securities are expected to be rated A2 by Moody’s and an equivalent A by Standard & Poor’s and Fitch Ratings. Telstra last sold euro- denominated bonds in March 2012, when it issued 1 billion euros of 3.5 percent notes due 2022, Bloomberg data show.

“The proceeds will be used for general corporate purposes which include a range of different business needs,” Scott Whiffin, a spokesman for Melbourne, Australia-based Telstra, said in an e-mail.

Company officials at Dallas-based AT&T declined to comment on the deal.

“The supportive thing for both credits is that their strong ratings offer shelter for European telecoms investors that are currently seeing plenty of downgrades,” said Morton. “The Italian political uncertainty is only really overhanging Italian issuers and contagion so far has been limited.”

Telecom Italia SpA (TIT)’s credit rating was cut to Baa3, the lowest investment grade, by Moody’s Investor’s Service last month, as Italy’s biggest phone company reported declining profitability at home.

KPN Hybrid

Dutch phone company Koninklijke KPN NV (KPN) is also tapping debt markets this week with a euro-denominated hybrid bond as it seeks to borrow 2 billion euros in different currencies, a person familiar with the matter said. KPN may sell debt in pounds later this week and the dollar portion later, according to the person. ING Groep NV strategist Jeroen van den Broek said the euro notes may yield about 6 percent.

To contact the reporter on this story: Jennifer Joan Lee in London at jlee176@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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