LONDON, Jan 30 (IFR) - Time is ticking for Vodafone. The
company might be the world's third largest mobile
telecommunications company and a bellwether for the global
industry but it is not immune to the impact of rising interest
rates and has to act now if it wants to pocket cheap debt to
fund an expansionary shopping spree.
Even if it is not eyeing anything close to the scale of
Verizon's 2013 USD49bn funding fest, the FTSE 100 constituent
would be shooting itself in the foot if it slumbered through the
lowest funding cost era for years, only to wake up to the smell
of rising interest rates and be served up a
larger-than-necessary borrowing bill for breakfast.
As an acquirer, Vodafone ticks all the boxes.
A cash injection from the sale of its wireless business to
Verizon Communications (that both entities approved just this
week) will have bolstered its credit ratings, and what's more,
Liberty Global - against whom Vodafone is tipped to have to
compete if it decides to bid for Spanish cable operator Ono - is
currently tied up with its own takeover of Ziggo.
Vodafone would be mistaken to wait until M&A markets are
reignited properly, given that it could end up being stuck
between a rock and a hard place whatever direction rates take.
If the Federal Reserve's tapering programme picks up
momentum, Vodafone's cost of borrowing will rise from multi-year
lows in sync with underlying interest rates.
On the flip side, if the Fed slows tapering, investors will
increasingly favour lower rated, non-core credit, forcing
Vodafone, with its A3/A- rating, to have to pay up anyway.
A slew of companies, including Bayer and Solvay, have shown
how fierce investors' appetite is for debt raised for
acquisitions, so Vodafone should put its foot down.
In November 2008, the group paid a weighty coupon of 8.125%
on a 10-year sterling bond. A year later, it paid a 6.25% coupon
on an even shorter seven-year euro bond.
Yes, those levels may be expensive relics of the past
compared to the less than 2% coupon it would likely be able to
pay on a seven-year euro bond today, but history has been known
to repeat itself.
A potentially heftier price tag for being put on hold for a
few months? Now, that would make Vodafone wish it had syndicate
bankers on speed-dial.