NEW YORK-Heading into a scorcher of an Independence Day holiday, American stock markets closed in record-setting territory, thereby heating up the prospects for wireless sector companies seeking financing during the second half of 1999.
By now it is a cliche to say that Alan Greenspan, chairman of the Federal Reserve Board, is the most influential person in the country, if not the world. However, it cannot be overstated that the equity markets’ bullish holiday cheer resulted directly from the Fed’s decision June 30 to raise interest rates by just a quarter of a percent. Although this was the first such increase in two years, its minuscule size indicated the interest rate-setting agency is unlikely to impose further hikes this year.
However, the picture is not entirely rosy. Overall underwriting of debt and equity issues in the public and Rule 144a private markets is likely to be about 10 percent lower during the first half of 1999 than the $1.23 trillion total reached during the first six months of 1998, according to an announcement in late June by Thomson Financial Securities Data, a Newark, N.J., clearinghouse that tracks these deals.
The prospect of rising interest rates hurts debt issues because investors receive a fixed rate of return. Corporate investment-grade bond and note issues likely will total about $20 billion less than the $423 billion sold during the first two quarters of 1998. Issuance of high-yield, high-risk debt- the kind of debt financing many wireless-related companies seek-will be off by more than 40 percent from the $95 billion total of first-half 1998, according to Securities Data.
High-yield telecommunications company bonds comprise between 30 percent and 40 percent of all new dollar-denominated issues sold publicly and privately during the past several years, said Les B. Levi, a managing director of Chase Securities Inc., New York. Consequently, the industry sector is not one to be ignored.
Bond buyers are well-advised to look for areas ready for consolidation, including wireless carriers, network infrastructure builders, Internet service providers and competitive local exchange carriers, he said.
Other best bets include companies with a good new technology, like personal communications services providers. The new fixed wireless access providers, which can help meet the burgeoning demand for high-speed data access, also offer good potential, Levi noted.
Bonds are more secure investments than stocks because debt gets repaid first when a company goes bankrupt. However, bond buyers are a more risk-averse group. Consequently, before they will join the bandwagon, bond buyers prefer to see that a company has garnered a substantial amount of equity investments placed at risk in its enterprise. Furthermore, debt investors rely on the equity markets, especially the public stock markets, to provide realistic valuations for companies.
During the first five months of this year, only $57 billion was recorded in net new equity mutual fund investments, down from $87 billion during the same period last year, according to AMG Data Services.
Despite that benchmark’s decline, at least two wireless companies have broken records with private equity placements in recent months. Dolphin Telecom plc, the London-based subsidiary of Telesystem International Wireless Inc., Montreal, raised $210 million in private equity investments in late April. At the time, it was the largest such transaction by a European telecommunications carrier. Stock sales of this magnitude typically occur in the public equity markets.
Dolphin also raised $200 million in a companion Rule 144a sale of debt securities, also to help finance its rollout of an enhanced specialized mobile radio network in Europe.
Metawave Communications Corp., a Redmond, Wash., manufacturer of wireless infrastructure components, raised $91 million in private equity financing. This was the latest such investment in a domestic equipment manufacturer during the first quarter of 1999.
In the public equity markets, “common stock underwriting appears to be within striking distance of setting a new semi-annual record,” said Thomson Financial Securities Data. As of late June, total common equity proceeds totaled $72.2 billion, just shy of the $73.7 billion record set during the first half of 1998.
Internet companies going public accounted for 76, or a third, of the initial and secondary public stock issues sold during the first half of this year. However, the dollar volume of Internet IPOs comprised only $6 billion of the $73 billion total.
“Red flags have surfaced. Of concern is the erosion in first-day gains from Internet IPOs,” Securities Data said.
While Internet IPOs were hot stocks during the first half of the year, other kinds of technology companies also gained access to public equity capital during this period.
Examples include the debut of Portal Software Inc., a Cupertino, Calif., provider of Portal, a real-time billing system for palmtop computers. It was the first Internet billing company to go public.
Phone.com Inc., formerly Unwired Planet Inc., also found an enthusiastic reception to its June IPO. The company has at least 35 carrier and handset maker customers for its server and browser products.
Wavecom S.A., a French provider of digital wireless standard modules, also had a well-received initial public offering in June.
Likewise, SBA Communications Corp., a Florida-based wireless tower company, went public in mid-June. SBA lowered its share price to $9 from the anticipated range of $10 to $11, but still it raised $90 million in its IPO.
Amdocs Ltd., a St. Louis provider of billing and related services to telecommunications carriers, sold a follow-on stock offering at about the same time of 20 million shares.
As of mid-June, there was about $5 billion of new and secondary media/telecommunications IPOs in registration, according to Donaldson, Lufkin & Jenrette Securities Corp. Technology companies had filed with the Securities and Exchange Commission for another $8 billion.
Foreign carriers, like domestic Internet companies, are competing with American wireless companies for the capital of American investors. By mid-July, Portugal Telecom and Telecom Eireann were expected to sell public share offerings, partly to investors in the United States.
Likewise, the federal government of Greece announced early this month it intends to sell an additional 14-percent stake in the Hellenic Telecommunications Organization S.A., or OTE, the public telecommunications operator, sometime in July. Turkcell, the largest Global System for Mobile communications operator in Turkey, said in early June it had asked the SEC for permission to go public later this year in the United States.
Closer to home, at least one personal communications services start-up-AirGate PCS Inc., an Atlanta-based Sprint PCS affiliate-has registered to go public.
There also is the possibility of one or more spinoff IPOs. Dennis F. Strigl, chief executive officer of Bell Atlantic Global Wireless, said late last month that Bell Atlantic Corp. is evaluating that option for its domestic and international wireless business units.
Telephone and Data Systems Inc. also wants to spin off its PCS subsidiary, Aerial Communications Inc.
Despite the pall cast recently on mobile satellite services, some securities analysts believe at least one, if not two, satellite-related companies will raise public equity by year’s end. Whether one of these companies is in the MSS sector remains to be seen, however.
Neither last nor least, two or three telecommunications billing companies also are eyeing the public stock markets for financing, said Douglas C. Ashton, senior vice president of equity research for Jefferies & Co. Inc., Boston.
