France Telecom is poised to take the unusual step of issuing 30-year bonds.

Telecoms giant France Telecom appears ready to take the unusual step of including a 30 year tranche in its up-coming E3 billion bond issue as it raises cash to finance its E70 billion debt. The company must repay E11.7 billion by year’s end, and over E20 billion by 2005.

The debts were mostly racked up in a spectacular spending spree in 1999 and 2000 that saw France Telecom buy stakes in companies such as Orange, Mobilcom and NTL. The value of its assets plummeted with the bursting of the dotcom bubble, landing it with a massive debt burden.

The company responded late last year with a long-anticipated restructuring plan, news of job cuts and a E9 billion loan from the French government. Although the loan is under investigation by European authorities and job cuts are likely to come only as a result of early retirements, the company is clearly moving in the right direction.

In fact, France Telecom has managed to extricate itself from several troubled relationships, including its links to Germany’s Mobilcom. Moreover, among its more successful acquisitions are companies such as leading mobile operator Orange. In addition, its ISP Wanadoo has also performed well.

Consider also that France Telecom has a strong earnings base and is on target to meet its revenue and earnings targets for 2002, with revenues expected to grow by 8-9%. Revenues are forecast to increase a further 5% in 2003 and ebitda is targeted to increase by 10%.

For now, France Telecom remains undeniably mired in debt, but there are reasons for the company to be cautiously cheerful in the long term. Thirty year bonds are highly unusual in Europe and were first successfully issued only last week by Olivetti. France Telecom’s willingness to capitalize on Olivetti’s success reveals a company that is ready to take the initiative and should not be overshadowed by its debts.

Related Research: Datamonitor, Industry Review: Telecoms – December 2002 (BFTC0791)

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