Deutsche Telekom Issue May Face Retail Deluge

Bankers involved with the issue say that retail investors may now account for a much larger share of the initial public offering than expected. The offering will be Germanys largest, at about DM15 billion ($9.8 billion).

If retail allocations have to be pared back considerably in order to leave enough shares for institutional investors, this could conflict with the governments aim of using the offering to promote equity-consciousness among the German saving and investing public.

On original estimates, up to half the shares in state-owned Telekom were expected to be sold in Germany. That proportion could now reach 75 per cent. Banks in the issuing consortium will be under pressure to give priority to retail investors, especially those who registered early for the IPO and apply for the maximum 300 shares.

Retail investors have been encouraged by Deutsche Telekoms business strategy, its position in the world telecommunications market and its improved image after the clumsy introduction of a tariff schedule in January. They are also attracted by the prospect of a dividend yield of up to seven per cent (including the domestic tax credit), which would exceed that of a 10-year government bond.

This would be based on an possible issue price of about DM25. The price will be set by the bookbuilding method, in which investors intentions are assessed in advance.

The price range will be set on October 22, with Deutsche Morgan Grenfell, the investment banking unit of Deutsche Bank, acting as global bookrunner.

Co-leading the international issuing consortium are Dresdner Bank and Goldman Sachs, the US investment bank. The issue price will be fixed on November 17.

The bankers said that retail investors unfamiliar with the bookbuilding process and the type of large privatisation issues that have occurred elsewhere in Europe