Last week, DT announced that it had agreed to divest six cable companies to Liberty Media Corp. Analysts expect the deal, which should be closed by the end of July, to raise up to Eu5bn in cash.
A flotation of 10%-15% of T-Mobile, which is valued at an estimated Eu65bn, could raise a further Eu10bn and analysts are confident DT will maintain its single-A status.
"DT should have no problem raising the remainder of its target within the specified time frame," said one analyst. "While the company's A3/A- ratings are both on negative outlook, we do not expect it to slip into the triple-B category."
Standard & Poor's (S&P) had placed the rating on CreditWatch in February, according to an agency report, "partly because of concerns that the firm would not pursue a partial IPO of T-Mobile, unless the likely valuation of these cellular assets improved substantially". Since then, DT had not made any firmer announcements regarding the possible IPO, so analysts were surprised when a fortnight ago S&P removed DT's rating from CreditWatch with negative implications and placed it on review for downgrade. In the event of a downgrade, the German telco would have been facing extra interest payments on around $14.9bn of paper.
The market took further comfort in the news that DT and British Telecom have agreed to share UMTS network costs in Germany. The positive sentiment towards the DT credit should help to tighten spreads on its forthcoming offering.
The Eu5bn-Eu8bn transaction, which should comprise five and 10 year paper, will attract keen demand as it is the last scheduled jumbo supply in the European telecoms sector this year. As the financing requirements of incumbents are now almost nil, analysts say the only other issuance before the year end will be opportunistic. The deal is still expected to incorporate step-up language.
Yesterday, BT 2006 euro paper was trading at 106bp over mid-swaps, while France Télécom 2010 euros were at around 108bp. Telefónica 2005s were at 55bp over mid-swaps. KPN 2006s were wider at 230bp, after the Dutch telco quashed speculation of a rights issue that, it had been hoped, would help trim its debt burden.
While DT has understandably cited recent positive news to support its credit during the roadshow, investors are likely to remain sceptical until the IPO of T-Mobile becomes a reality.