Vodafone shares rose 2% as it said it plans to raise about €4bn selling bonds that will be converted into shares to fund the acquisition of some of Liberty Global’s European businesses without weighing down the phone giant’s balance sheet.
The two sets of sterling-denominated securities will help pay for the $22bn (€19.4bn) purchase of Liberty Global’s German and Eastern European units, part of the telecom company’s push to refocus on the continent after years scaling back its global ambitions.
Vodafone chief executive Nick Read is trying to rein in debt as he prepares to close the Liberty deal, which still needs approval from European competition authorities.
The mandatory convertible bond sale plans follow Vodafone’s issuance of almost £2.9bn (€2.5bn) of mandatory convertible bonds three years ago.
“Vodafone is one of the stronger issuers in the convertible universe,” said Ivan Nikolov, portfolio manager at NN Investment Partners. Vodafone said it expects the mandatory convertible bonds, excluding the value of coupon payments, to be accounted for as equity.
They are scheduled to convert into shares in 2021 and 2022. The company said it could buy back shares to mitigate dilution and fund the purchase by issuing hybrid securities.
As it has become harder for companies to justify heavy borrowing to reward shareholders with dividend payouts, stock buybacks, and acquisitions, they have been turning to convertible bonds, which offer a compromise.
In 2017, Bayer announced the sale of €1bn worth of bonds convertible into shares of Covestro to cut its stake in the chemical company.