- British phone company takes advantage of stabilizing markets
- Peel Hunt: `It's a shrewd move and sensible corporate finance'
Vodafone Group Plc plans to raise about 2.9 billion pounds ($4.1 billion) by selling mandatory convertible bonds, taking advantage of stabilizing market conditions to raise money it won’t have to pay back.
The two sets of notes, maturing in 18 months and 3 years, will convert into ordinary shares representing about 5 percent of the mobile-phone carrier’s share capital, the London-based mobile-phone company said Thursday in a statement. Holders of mandatory convertible bonds are required to convert them into stock before they mature.
Vodafone is acting while interest rates are low and markets have calmed somewhat following a volatile start to the year. In an e-mailed statement, the company said the mandatory convertible structure won’t harm its credit ratios and give it access to a more diverse set of investors. Apple Inc. earlier this week said it was selling $12 billion of bonds to return capital to shareholders.
“This is less about cost and more about access to credit for general corporate purposes,” Vodafone said.
The bonds will be converted into stock at either 2.173 pounds a share, or an average price over the three trading days starting Friday, whichever is higher. Vodafone will announce the conversion price after the close of market trading Feb. 23.
The coupon will be set during the bookbuilding process, and is expected to be 1.20 percent to 1.50 percent for the 18-month security and 1.70 percent to 2 percent for the three-year bond, Vodafone said.
To offset the dilutive effect of the new shares, Vodafone may buy back stock following the conversion of the bonds, using cash it can get from selling loan notes the company received in 2014 in the sale of its stake in Verizon Wireless.
Vodafone is among European carriers striking combinations to seek savings and add products as consumers increasingly buy TV, wireless and broadband from a single provider. The carrier this week agreed to combine its Dutch business with that of Liberty Global Plc, paying about 1 billion euros ($1.1 billion) in cash to the cable giant.
Shares of Vodafone declined 0.4 percent to 216.55 pence at 12:04 p.m. in London. They have lost about 4 percent in the past year, giving the Newbury, England-based company a market value of 57 billion pounds.
“Basically Vodafone believes their share price is undervalued and so they are issuing debt that will be turned into stock at a later date,” said Alex DeGroote, analyst at Peel Hunt in London. “In the end 5 percent is a small deal, but it’s a shrewd move and sensible corporate finance.”
Vodafone said it intends to use the bond sale’s proceeds for general corporate purposes. The company also plans to use options trades to hedge its exposure to share price movements during the term of the bonds, and the money from the bond sale will provide collateral for those trades.