March 24, 2011 / 9:51 PM / 6 years ago

RPT-Telstra index weighting to rise after sovereign fund trims stake

(Repeats story first published March 24)

By Sonali Paul

MELBOURNE, March 24 (Reuters) - Australia's sovereign wealth fund has trimmed its stake in Telstra Corp to less than 5 percent, which will trigger an increase in the nation's top phone company's weighting in the benchmark S&P/ASX 200 index in June.

The $71 billion Future Fund said on Thursday it had sold down its holding on the market to 4.99 percent.

As a result, S&P will be able to adjust Telstra's free float to 100 percent, raising Telstra's weighting in the S&P/ASX 200 to 3 percent from 2.7 percent, Macquarie said in a recent note.

That would force passive fund managers whose portfolios reflect the index to buy some 60 million shares in Telstra to neutralise their positions, Macquarie senior analyst John Conomos said.

Demand from active fund managers could be much larger than from passive managers, he said.

"It'll certainly be positive, now that the Future Fund is under 5 percent," said Jason Teh, a portfolio manager at Investors Mutual, which owns Telstra shares, pointing to the likely buying from passive index managers.

"But it has nothing to do with valuations," he added.

Standard & Poor's said it would review Telstra's free float at its next quarterly review in June, as the change stemmed from an incremental sell-down, not a block sale which would have triggered an immediate review.

It declined to comment on what Telstra's weight would be.

The Future Fund, Telstra's biggest shareholder and biggest critic, has sold down its 16.4 percent stake over the past two years amid worries about Telstra's declining performance and uncertainty over the government's proposed $39 billion high speed broadband network.

Citi advised the Future Fund on its sell down, with Citi and Deutsche Bank acting as brokers.

Over the past seven months when most of the selling occurred, Telstra's shares have traded between a record low of A$2.55 and A$2.99

It was not clear whether the Future Fund plans to trim its stake further, which could add to pressure on the shares.

"The sell-down has been in line with the (Future Fund) Board's stated plan to reduce the portfolio's holding in Telstra in an orderly manner over the medium term and to build a portfolio consistent with its long term mandate and strategy," the Future Fund said in a statement on Thursday.

Telstra shares closed at A$2.66 on Thursday ahead of the Future Fund's announcement. (Reporting by Sonali Paul; Editing by Ed Davies)

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