Manitoba Tel shares drop as it eyes equity issue

Fri Nov 8, 2013 11:34am EST
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By Alastair Sharp

TORONTO Nov 8 (Reuters) - Shares in Manitoba Telecom Services Inc fell on Friday after the company said it would consider issuing equity to help fund pension obligations after a major asset sale was blocked by Canada's federal government.

The regional telecom company's stock was down 1.5 percent at C$29.07 at midmorning on the Toronto Stock Exchange.

The company reported a drop in both earnings per share and revenue after the market close on Thursday.

MTS had tried to sell its Allstream fiber optic network to Egyptian telecom magnate Naguib Sawiris and his Accelero Capital Holdings, but the C$520 million ($495.73 million) deal was blocked by the government, which cited unspecified national security concerns.

MTS had earmarked C$170 million of that money to prefund some of its C$350 million pension solvency deficit and eliminate future solvency payments until at least 2016. Its solvency requirement for 2014 is around C$55 million.

"We are now reassessing the appropriate level of pension plan prefunding and contemplating a range of alternative financing strategies, with a preference to issuing equity to prepay our solvency funding requirements for the coming years," MTS Chief Financial Officer Wayne Demkey said on a conference call with analysts late on Thursday. He did not detail how much equity the company might issue or when it could happen.

RBC analyst Drew McReynolds said he has factored in a C$200 million share sale for the current quarter.

"The rationale for timing includes the desire to avoid any pension solvency funding in 2014 and the likely desire to increase financial flexibility in advance of the 700 MHz auction," he wrote in a note to clients.

The government will start auction of 700 MHz airwaves in January. The airwaves are highly prized by the telecom industry for their ability to penetrate buildings and travel long distances.

($1=$1.05 Canadian) (Editing by Jeffrey Hodgson; and Peter Galloway)