In Ireland the highlight of the investment scene over the summer months will undoubtedly be the Telecom Eireann E) flotation. More than one million people have registered their interest in subscribing for shares in the initial public offering and it is expected that up to 50 per cent, or almost half a million people, could actually apply for the shares.
In one fell swoop the E Telecom flotation will lead to a sharp increase in share-ownership in Ireland. A recent survey estimated that 13 per cent of the adult population now holds company shares compared with a figure of 25 per cent in Britain. Over the past five to 10 years there has been a steady increase in the number of private investors in the equity market much of it driven by privatisations and demutualisations. Irrespective of new issues such as E, the Telecom Eireann float, there is a strong underlying trend towards wider share ownership in Ireland.
The very rapid rates of economic growth in recent years have generated substantial wealth which will be seeking higher rates of return than those on offer from low-risk investments such as bank deposits. Also, as property values climb ever higher, funds that would otherwise have been directed to property investments could well be redirected towards the equity market.
The huge public relations effort that is being put into the retail element of the E issue Telecom float has not surprisingly overshadowed another high-profile issue of telecom shares across Europe. This is a capital raising exercise by Europe's largest telecom company - Deutsche Telekom - which is aiming to raise in excess of €10 billion (£7.9 billion) to fund its international expansion plans. A unique feature of this share offering is that private investors throughout Europe are being given the opportunity to invest on identical terms. The Irish retail offer is being handled by NCB/Ulster Bank.
Private investors are being offered some attractive sweeteners to entice them to invest in this issue. Those who register before June 15th will receive a discount of €2 on the price at which the shares will be issued. The current price is around €40 so that this will represent a discount of about 5 per cent.
Furthermore, those shareholders who hold any shares that they acquire for more than one year will be entitled to a loyalty bonus in the ratio of one share for every 10 held. Therefore for those who view Deutsche Telekom (DT) as an attractive long-term investment, the current share offer looks like a cheap way to gain exposure to the company.
The minimum investment is for 50 shares equivalent to about €2,000 and there is no maximum, although the indications are that the shares will be oversubscribed. Of course the critical issue is whether DT is a good long-term investment in Europe's telecommunications industry.
One negative is that the German regulatory regime is quite tough and therefore DT is likely to continue to lose market share in its domestic market. However, the company is aiming to grow its international business rapidly through acquisitions.
This was evidenced by its attempt to merge with the Italian operator, Telecom Italia. This particular deal failed as Olivetti succeeded in its takeover of Telecom Italia. While this was a setback for DT there were many analysts who questioned whether this proposed merger was in fact the best international deal that DT could have done. The current fund-raising exercise shows that DT is determined to push ahead with its expansion plans.
Given that the Telecom Eireann issue could well be hugely oversubscribed, those private investors who wish to increase their investment in Europe's telecom sector could well find that they will simply not be able to get enough shares in E. the company. The current secondary offering from Deutsche Telekom could therefore be viewed as a complementary investment to holding a stake in Telecom Eireann.
