Eircom has committed itself to an aggressive dividend policy to underpin its return to the stock market. The company said yesterday that it would pay a dividend of €81 million next year, This is the equivalent of 11 cents per share and a yield of almost 7 per cent on the shares, which are expected to be priced at around €1.62. John McManus reports.
The company expects to complete its initial public offering (IPO) by March 19th. It plans to raise €831 million, of which €300 million will be in fresh equity and the remaining €531 million will come from the sale of shares by current shareholders. Around €90 million of the primary proceeds will go to meet fees and €27 million will go to close out hedging positions. The bulk of the remainder, around €185 million, will be used to repay debt.
The Eircom Employee Share Ownership Plan Trustee (ESOT) will retain its 30 per cent stake, buying €85 million worth of shares in the primary offering to avoid dilution.
The 6.8 per cent yield announced in yesterday's pathfinder prospectus compares to a yield of less than 6 per cent mooted in soundings taken from potential investors last week. Sources close to the deal said it did not indicate a lack of investor interest. "It is priced to go, but not ridiculously cheap," said one source. But they added it reflected the company's dependence on the highly regulated fixed-line market.
Comparisons were drawn with Belgacom, Belgium's state-owned phone company. It will join the market on March 22nd, just three days after Eircom is due to float in Dublin and London. It is on a prospective yield of 4 per cent reflecting its exposure to the mobile market, which is seen as the sector from which future growth will come.
Dr Philip Nolan, the Eircom chief executive, addressed the issue of Eircom's limited growth potential yesterday, but conceded that the main attraction for investors was the strong dividend.
The company has committed itself to paying out half of free cash flow (after tax, debt servicing and capital expenditure) in dividends.
Analysts said yesterday that operating under this constraint would make it difficult for the company to re-enter the mobile market it exited in 2001 with the sale of Eircell to Vodafone. Yesterday Eircom said it had "not yet identified an attractive commercial proposition for a re-entry to the Irish mobile market" but was continuing to evaluate options subject to "its disciplined capital expenditure programme".
The company was more upbeat about the prospect for growth in broadband services. "Broadband has been rolled out and we are seeing accelerated demand," said Mr Nolan.
In a statement the company said that the development of a broadband customer base provided it with the opportunity for new revenues from value added services, such as entertainment and information services.
The company published its results for the nine months to the end of December in the prospectus. Debt stood at around €2.3 billion and the company made a net loss of €72 million on sales of €1.23 billion. Earnings before interest, tax, depreciation and amortisation were €450 million and capital expenditure €150 million.
