Valentia may get dividend go-ahead

BONDHOLDERS in Valentia Telecommunications, the owner of Eircom, were last night expected to give the go-ahead for the company to pay a dividend if it floats on the stock exchange.

Valentia has been in negotiations with the bondholders for several weeks and the deadline for conclusion of the talks lapsed yesterday.

Eircom raised €1.1 billion from a bond issue last year and, as part of the arrangement with bondholders, it agreed to suspend dividend payments. Last May, the company paid its shareholders, which include Tony O’Reilly, George Soros and its employees, €540 million in dividends.

The bondholders are expected to receive about €20 million from Eircom for agreeing to the resumption of dividend payments, vital for the company if it relisted on the stock market.

As a utility company, Eircom would be expected to pay shareholders a large dividend to attract major institutional investors. But credit ratings agency Standard & Poor’s has placed Valentia on credit watch with negative implications. It said it would most likely lower its corporate credit rating on Valentia by one notch if the bondholders accept Eircom’s offer. As of last September, the group’s lease-adjusted total debt was €2.25 billion.

Eircom has confirmed it is considering returning to the market, less than three years since it was bought by Valentia, chaired by Dr O’Reilly. A final decision on whether to launch an initial public offering is expected soon and it could take place before June, five years since the former State monopoly was first floated.

The company has already hired its main financial advisers in Dublin and London to prepare the groundwork on a listing.

Unlike the last time, when the company was sold off by the Government amid a blaze of publicity and an advertising blitz to encourage as many people to buy shares, any new IPO would be heavily targeted at financial institutions. Throughout 2000 and 2001, Eircom shares fell heavily, but most small shareholders were burned badly and took heavy losses.

Valentia bought Eircom for €1.365 per share, a far cry for the €3.90 flotation price, even allowing for the sale of its mobile arm to Vodafone.

An IPO will net billions for its major investors, the US firms Providence Equity Partners and Soros Private Equity which owns close to 65% of the company. The employee share ownership trust (ESOT) owns 29%, whole Dr O’Reilly controls about 5%.