Even though the Telecom Eireann privatisation is not expected for six months, it is already generating plenty of interest, even among small investors who normally would not think of buying shares. If the Government has anything to do with it, there will be plenty demand from small investors for Telecom shares. The advertising agency promoting the flotation has been given the brief to generate the maximum retail demand, so from March onwards expect a barrage of promotional adverts for the flotation on radio, television and the print media. No details have been revealed about the number of shares for sale, but informed sources have indicated that about 35 per cent of Telecom will be sold - part to the public in a general offering and part directly to institutional investors. How much these shares will be worth will depend on the situation on the stock market in June, but one factor that augurs well for the flotation is the boom in telecom shares worldwide.
Recent privatisations of state-owned telecom companies in France, Germany, Finland and Switzerland have been hugely successful, while the telecom sector has also been boosted by a number of big mergers and acquisitions. Telecom Eireann is expected to be a very attractive investment for the big institutional investors, and that alone should guarantee the success of the flotation.
At current prices, 35 per cent of Telecom is worth £1 billion (€1.27 billion) to £1.2 billion. It sounds like a lot, but will it be enough to meet the demand from the institutions and the public? Should that volume of shares be split evenly between institutions and the public, the ordinary citizens could end up with a combined ownership of £500 million - and that is before the shares even start trading. Every adult in the State will qualify to buy shares but, if other public share placings are anything to go by, the majority of the population will ignore the promotional campaign and not take up the offer. But even if one-third of us do - and that amounts to 500,000 people - it would mean that each applicant would only get £1,000 worth of shares.
So anybody looking for large amounts of Telecom shares is likely to be disappointed, as the allocation of shares is likely to be heavily biased towards the small investor. Someone looking for £1,000 worth may well get a full allocation, but larger applications are likely to be scaled back.
Our sources say the Government will certainly price the Telecom shares at a rate to guarantee the flotation is a success. The big institutions can nearly guarantee that success on their own: their allocation will hardly satisfy their demand and trading will be brisk from day one. Telecom will be the fifth biggest stock on the Irish market, we are told and will account for about 7 per cent of the ISEQ Index. What advice are the pundits recommending for prospective Telecom investors?
Firstly, brokers and analysts are saying, buy the shares. Nothing is guaranteed on the stock market, but the Government and its advisers will do everything they can to ensure that the flotation is a success, and that means that the share should rise from its offer level.
Secondly, do not be greedy. If you borrow £50,000 to buy Telecom shares, the chances are that you will not get anything like that amount and you will have to hand nearly all of it back to the bank, having already incurred some charges. If you look for £1,000 worth, you have a good chance of getting £1,000 worth - after that your application will be scaled back quickly.
Thirdly, do not rush to sell into the flotation. Many of those who got First Active shares made such a mistake, ignoring advice from this column and others to stay put, at least until the market settled. The big institutions will still be out there looking for Telecom stock months after the public offering is completed.
Fourthly, if you want to sell, check the deals are on offer from stockbroking firms. It is certain that special sell rates will be offered to Telecom shareholders, so shop around.
