Mandatory returns

13 December 2002 By Mike Monnelly

The move a forward share sale at a 20% discount underlines the fragility of Alcatel s financial position. The deal structure, removing regulatory and credit risk, is clever. Still, the plunge in the stock made the trade pretty hairy.

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Alcatel sold E630m of mandatory convertible securities to institutions on Thursday. The French telecoms equipment manufacturer is also marketing E190m of identical securities to French retail investors.

The threeyear notes were issued at par for a price of E5.34. They are mandatorily convertible into Alcatel A shares on a oneforone basis upon maturity.

The notes will carry an annual interest rate of 7.917%. Alcatel will prepay on 2 January 2003 the full amount of interest payable from the settlement date to the maturity date, discounted to its net present value. That is 20.43% of the issue price, equivalent to E1.09 per note.

Alcatel shares closed on Wednesday, the day before the trade was marketed, at E5.33. They closed on Thursday at E4.50, having fallen from around E5.05 at the time the deal was announced. Deutsche Bank managed the offering.

Mandatory returns

13 December 2002 By Mike Monnelly

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