Ireland's Esat Provides Boon To Bondholders

Irish telecom company Esat rewarded bondholders last week with one of the biggest high yield upswings in recent weeks, as its 175 million euro issue jumped about 11 points in just a couple of days to trade at the unusually high level of 118. Meanwhile its two U.S. dollar issues, worth about $280 million combined, registered similar gains, investors said.

If that wasn't enough, there was market chatter of a possible buyback and an upgrade in the near future, boding well for further price appreciation, analysts said. Currently, the issuer carries a rating of B+ from Standard & Poor's and B3 by Moody's Investors Service.

The frenzied bond buying came on the news that Norway's Telenor AS and Sweden's Telia AB want to buy Esat for $1.6 billion in cash as the two seek to take advantage of the fast-growing Irish telecom market.

The two made an offer of $72 a share, which was 11% more than the market price, investors said. However, after the offer was extended, the shares surged to $78.50, reflecting a consensus from investors that the offer price will go even higher for the company.

And that stems from the fact that Esat urged the shareholders to reject the original offer. Even if this offer falls through, one investor said last week, Esat is still prime for a takeover from other potential acquirers.

Ireland has one of the most vibrant economies in Europe, analysts said last week, with expected growth of 9% in 1999, compared with growth of just over 2% for most of Western Europe. And the Irish wireless sector is far from saturated. That's because only one in three people currently have wireless phones, compared with the one-in-two ratio in Telenor's and Telia's Nordic home countries.

This deal also may represent the breakthrough deal that the market was waiting for in the logjam of mergers and acquisitions in the telecom sector, according to one analyst.