Canada's telcos raise cheap money in internet bet, Fed hikes loom

Fri Aug 12, 2016 3:22pm EDT
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By Alastair Sharp

TORONTO Aug 12 (Reuters) - Canadian telecom companies are rushing to secure cheap money to fund acquisitions and big infrastructure projects as their reliance on customer appetite for internet services grows.

Take Canada's BCE Inc, better known to its millions of internet and telephone customers as Bell, which this week raised C$1.5 billion ($1.2 billion) in debt, in part to pay down more expensive loans and fund its takeover of a data center business.

But the window to borrow so cheaply may close if the U.S. Federal Reserve raises rates further this year, which would broadly increase corporate borrowing costs.

Bell and the country's other big operators produce relatively strong earnings growth and free cash flow, and are seen as less volatile than similarly-rated corporate debt issuers such as oil and gas companies.

This and their ability to turn bigger profits than more heavily regulated utilities make them attractive to investors facing otherwise dismal returns on government debt or stocks.

"If you lose your job, the last thing you're going to give up is your cell phone," said Adrienne Young, portfolio manager and director of credit at Franklin Bissett Investment Management.

Historically low borrowing costs are boosting cash flow at Bell, Telus Corp and Rogers Communications Inc by about C$500 million a year, Desjardins analyst Maher Yaghi wrote on Thursday. He upgraded Telus to a "buy" recommendation and increased target prices across the industry.

Bell got its best-ever rate on this week's debt, which pushed its annual pre-tax financing costs down to 4.56 percent with an average maturity of more than nine years.   Continued...