Telstra 2 Warrant Plan Hits Impasse
The Age
Thursday September 21, 2000
Brokers planning to offer warrant products to holders of Telstra instalment receipts are locked in a tussle with Perpetual Registrars, the Telstra 2 registry, over a series of complex legal and cost issues related to the proposed warrants.
The uncertainty is causing delays for investment managers trying to finalise pricing for the warrants, which are expected to be offered by at least six broking houses.
While the issues are close to resolution, brokers are anxious to begin marketing the new products as soon as possible.
The tradeable warrants effectively enable holders of Telstra instalment receipts to defer paying their final instalment for 12months, 18 months, three years or as much as 10 years.
Investors buying warrants would transfer their receipts into a trust account operated by the broker, yet retain beneficial ownership of the underlying Telstra ordinary share.
They would receive all dividends and franking credits stemming from the Telstra ordinary shares.
At the end of the agreed period, investors would pay the outstanding instalment plus accrued interest, and receive full ownership of their Telstra ordinary shares.
Brokers said talks between the warrant issuers, Perpetual and the Australian Stock Exchange had been under way for some weeks.
At issue is who should bear the cost of transferring ownership of the instalment receipts when the receipts are lodged with the brokers, and whether or not investors swapping receipts for warrants can claim the ``loyalty discount".
This 15-cent discount applies only to investors who bought the instalment receipts in the Federal Government's $16 billion Telstra 2 share offer last year.
Original investors must pay a final instalment of $2.90 per receipt by November 2. Institutions and others who bought receipts on-market must pay $3.05.
Questions have been raised about whether or not investors surrenders ownership - and therefore the ``loyalty discount" - if they purchased an instalment warrant before November 2.
Brokers are confident that investors will not lose the discount, although this is yet to be clarified for some products.
While the interest rates on the warrants compare well against personal loan rates, the final charge may include an adviser fee, the cost to the broker of hedging its position, and ancilliary fees.
Brokers planning warrants include ANZ, UBS Warburg, Commonwealth Securities, Deutsche Equities, Macquarie Bank and BNP Paribas.
A Telstra 2 spokesman said Perpetual Registrars and the Telstra Instalment Receipt Trustee noted that ``it will remain the responsibility of the warrant issuers to ensure that instalment receipt holders are not disadvantaged by participating in these products".
The reporter owns Telstra shares.
© 2000 The Age