C&W to raise pounds 3.8bn on the back of One2One stake

CABLE & WIRELESS, the UK's second largest telecoms company, yesterday said it was raising pounds 3.8bn to give it extra financial muscle by effectively using its stake in One2One as collateral.

In the midst of a competitive international auction for One2One, C&W is selling its 50 per cent stake to a finance company controlled by Merrill Lynch, the investment bank, and part-owned by Cable & Wireless subsidiaries.

The ad hoc finance company will use the One2One stake to raise loans from a consortium of banks including HSBC, Bank of America, Citigroup, Chase Manhattan and Paribas. Cable & Wireless will have a call option on the stake lasting one year, enabling it to buy it back and sell it on to the winner of the auction.

A spokesman for C&W said the company had to avoid cash-flow problems as it mounts a pounds 2bn program of capital investment and could not wait for the proceeds of its disposals.

C&W is engaged in two large takeover bids, offering $712m (pounds 440m) for International Digital Communications (IDC) of Japan and A$1.5bn (pounds 635m) for AAPT, the Australian local operator"Without this we would have a cash flow problem. If we hadn't got that financial flexibility we might have to slow-down our plans to expand or suspend the IDC bid," the spokesman said.

The transaction sidesteps the disadvantages of a giant loan to C&W itself, which would boost interest charges at a company where gearing already stands at 87 per cent. "They've got the bid for IDC on the table and a huge increase in capital expenditure planned, and they're not exactly flush with cash,'' said Justinian Clifford-Bowles, an analyst at Commerzbank Global Securities in London.

By 14 June, the group will produce a shortlist of bidders for part or all of its stake in One2One, estimated by some analysts to be worth up to pounds 5bn. The leading candidates for the short-list are Deutsche Telekom, France Telecom, Mannesmann, Germany's biggest mobile phone operator, and Vivendi, the French water company.

Yesterday, the Australian competition authorities said they had some concerns about the AAPT bid. A successful bid would give C&W control of the second and third largest telecoms groups in Australia - AAPT and Optus, which is already owned by C&W.

Last month the group announced a giant expansion program. In the next three years it will spend pounds 425m to expand its network in the US, pounds 625m to build a high-speed network in Europe and pounds 2,400m for UK investment.

The group has warned that the scale of the investment programme could wipe 10 to 15 per cent from its profits this year. The financial strain will abate when C&W completes the sale of its Global Marine division, fetching pounds 450m. A 20 per cent stake in Bouygues Telecom, the French mobile operator, will also be sold.

C&W is also reported to be planning to sell off the residential business of Cable & Wireless Communications, the cable operator where it holds 52 per cent, retaining the business division.

Analysts yesterday speculated that C&W may be planning to bid for a new telecoms operator such as Colt Telecom. But C&W insisted it was not building a war-chest. Shares in the group slid from 813p to close at 808p.

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