GERMAN telecommunications company Deutsche Telekom AG said yesterday that it would use the 20 billion deutschmarks or so raised in its first ever share placement to pay off outstanding debt.
The company's chief financial officer Mr Joachim Kroeske told a news conference that the proceeds would be used "completely" to settle debts. Telekom said earlier it would issue 713 million shares at a price of DM28.50 each.
The issue, which was over subscribed five times, has sparked the imagination of millions of ordinary Germans, many first time investors, who have tossed caution to the wind and cracked open piggy banks and bet their savings to make a fortune on the stock market.
Telekom offered individual investors discounts of 50 pfennigs a share, dividends of 60 pfennigs this year and around DM1.20 next year, as well as a bonus share for every ten shares held for at least three years.
The German government and, the financial community are hoping that the enormous interest on the part of amateur investors will be the catalyst needed to promote broad based investment in shares.
The short term success of Telekom's share offering is nearly certain because the company's five per cent weighting in the DAX index, making it one of the largest DAX shares, means funds will have to include it in their German portfolios.
But Telekom must convince investors in the long term that by cutting its debt mountain of over DM100 billion and turning huge investments of the past few years into profits.
At a news conference in Frankfurt, Telekom's chief executive Mr Ron Sommer said private and institutional investors would be allotted shares at a price of DM28.50 each, a slightly lower price than the DM30 ticket markets had been expecting.
The total issue of 713 million shares would raise about DM20 billion, making it uncontestably Europe's largest ever initial public offering, Mr Sommer said.
Of the total issue volume, 33 per cent had gone to investors outside Germany, where interest had been very strong, he said. "Foreign investors took up around 33 per cent of the floated shares. The demand was many times this and represented a volume of more than DM30 billion," he said.
In the United States, the company's American Depository Shares will be issued at $18.89 each, Mr Kroeske said.
