Mar 6, 2019
Vodafone launches convertible bond to back Liberty deal
Vodafone has raised the largest ever sterling convertible bond, using a kind of financial engineering that aims to protect the debt-laden UK telecoms company's credit rating while it funds a blockbuster €19bn takeover deal. Vodafone announced its acquisition of Liberty Global's cable networks in Germany and eastern Europe nearly a year ago, laying out a multi-stage funding plan that would include €3bn-worth of new bonds that convert into equities at a later date. Typically, convertible bonds give investors the option to be repaid in cash or shares, but so-called "Mandatory" convertibles - such as those sold by Vodafone - mean the company is obliged to hand stock to investors in future. While lots of companies have raised either mandatory convertible or equity-neutral convertible bonds, no other company has ever successfully blended both features into a single deal. Vodafone's equity-neutral mandatory convertible bond aims to pull off a trick: raising bonds which accountants and rating agencies view as equity rather than debt, but which shareholders will not treat as a fresh stock sale, diluting their existing holdings.
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