Dutch telecommunications group KPN will be permitted to own a maximum of 29.9 per cent of Telecom Eireann if Telia is forced to sell its Telecom shareholding, it has emerged. It had been thought previously that KPN could ultimately hold as much as 35 per cent of the soon-to-be-floated State company.

The disclosure also means that a further five per cent of Telecom - over and above the 50.1 per cent which the Government is selling - could become available to investors. Telia, the Swedish telecoms company, is KPN's partner in the Comsource group, which has an option to buy up to 35 per cent of Telecom Eireann. However, Telia is currently in merger talks with the Norwegian telecoms group, Telenor, and as the latter owns almost 50 per cent of Esat Digifone, the second mobile phone operator, there would be a clear conflict of interest in the enlarged group's Irish operations if the deal goes ahead.

KPN yesterday confirmed that it would be exercising its option to increase its stake in Telecom, from 12 per cent to 21 per cent. It said that if Telia has to withdraw from Telecom Eireann because of its merger with Telenor, then KPN will be allowed to bid for a maximum of 8.9 per cent of Telia's stake. Telia is to exercise its option to increase its stake from 8 per cent to 14 per cent, according to the flotation prospectus.

KPN will acquire the additional interest by exercising the 9 per cent option agreed when it bought into Telecom in 1996 for £120 million. Under a claw-back arrangement, KPN will also make additional payments to the Exchequer, which will be calculated at the end of next January. The shares will float at between £2.64 and £3.27.

KPN said that, on this basis, its total cumulative investment for its 21 per cent stake will be between £820 million and £960 million (€1.04-€1.21 billion), with an expected market value between £1.2 billion and £1.5 billion.