The Estonian Transport and Communications Ministry announced Jan. 9 the initial public offering of 36 million Eesti Telekom's shares with a face value of 10 kroons ($0.75). The offering, in which the government will part with 49 percent of its Telekom's shares, will last from Jan. 25 until Feb. 9.
The shares will be offered to the general public and local and international institutional investors, and Estonia is already prepared for a subscription boom.
In case there are more subscriptions than there are shares offered, domestic investors will be secured half of the shares they sought to buy, but not more than 7,500 kroons worth of shares at the offered price.
The Telekom group's 3,500 employees are guaranteed shares worth 20,000 kroons, the business newspaper Aripaev reported.
Both international and local investors will be offered the company's shares at the same price.
The share price will be determined within the range of the minimum and the maximum bidding prices set by the Transport Ministry. The final sale price of the shares will be announced after the closing of the subscription period.
The allocation of the shares among the investors who have submitted valid offers is expected to take place on Feb. 10. In Estonia, the shares can be subscribed to at the offices of Uhispank, Hansapank, Optiva Pank and Krediidipank.
Analysts predict that Estonian investors may acquire about 10 percent of the total offering for 200 million kroons to 240 million kroons.
This may negatively influence the share price of other companies quoted on the Tallinn Stock Exchange. Specialist predict that those prices may drop as investors withdraw their money to buy Telekom's shares.
But stock market specialists positively value the public offering as it might add activity to a stale Estonian stock market.
"The share issue should boost the market and give it a positive trend. The investors' trust will increase to some extent. There is too much pessimism on the market," said Henrik Igasta, investment banking director at Talinvest Suprema.
"These are the first shares that will get into the hands of real Western investors, and interest in Estonian stocks may increase and foreign investors may find more attractive stocks on the Estonian market," said Mihkel Oim, portfolio manager at Hansapank.
The overall opinion of several analysts is that the share price will range from 65 kroons to 75 kroons and will increase on the secondary market due to oversubscription.
The stock market specialists also predict the price increase judging from the initial public offering of telecom shares abroad. They cite Sonera's example, whose share price doubled on the secondary market after the initial public offering.
"In case of a successful issue the share price will increase by 15 percent on a secondary market. Smaller Scandinavian investors, who are not able to acquire shares from the initial public offering, will come on the secondary market. The share price has a strong potential to increase," said Igasta.
Igasta said that Talinvest Suprema estimated Telekom's share price within the range of 64 to 76 kroons and set the company's value at 8.7 billion to 10. 5 billion kroons.
Oim noted that Western investment companies estimate the price of Telekom more optimistically than Uhispank or Talinvest Suprema. Credit Swiss First Boston estimated the value to about $1 billion or about 14 billion kroons, he said.
He also said that the share price will depend on various factors, among which he mentioned demand, oversubscription, the situation on the Brazilian market and the possibility of buying shares through local investors.
"This is the biggest share issue ever held in the Baltics. It is almost three to four times larger than the GDR issues of Uhispank, Unibanka and Vilniaus Bankas," said Igasta noting that Telekom is the first listed infrastructure company in Estonia and its value may comprise over half of the total market capitalization on the stock exchange.
"Telecoms' financial results are usually not influenced by macroeconomic results. If the global trend is pessimistic, Telekoms's results may not be. People still use telephones," said Igasta.
Under a new shareholders' agreement signed in December, about 20 percent of the company's net profit will be paid out in dividends in the future. In 1997, Estonian Telekom paid 57 million kroons in dividends, and the expected dividends for 1998 might be the same. The company's profitability rate is about 20 percent net profit.
Although Telekom's shareholders are guaranteed a lot of dividends, Oim believes that investors are looking for profits more from the increase of the share price than dividends.
According to an analysis made by Talinvest Suprema, Estonian Telekom's total income in 1998 will be 2.78 billion kroons and the net profit 559 million kroons. For 1999 the respective figures should be about 3.35 billion kroons and 661 million kroons.
The companies net income has increased by 36 percent and 44 percent during the last two years, and may, according to Talinvest, annually increase by 11 percent in fixed line and by 15 percent in cellular phone business during the next four years. Telekom predicts that the company's consolidated profit may increase by 15.2 percent a year till 2001.
International participants ABN AMRO Bank N.V., N.M. Rothschild & Sons Ltd., and Nomura International PLC will help a forthcoming initial public offering of shares in Estonian Telecom.
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