By Rishav Chatterjee
(Reuters) -Australia’s TPG Telecom said on Tuesday it would return A$3 billion ($1.94 billion) to shareholders as part of a broader plan to streamline its capital structure and reduce debt, sending its shares to a three-year high.
TPG finalised its A$5.25 billion transaction with Macquarie-backed Vocus in July, generating net cash proceeds of A$4.7 billion.
Shares in TPG rallied as much as 4.2% to their highest since August 2022.
To cushion the impact of the capital return on its free float, TPG will offer minority shareholders the option to reinvest their proceeds into new company shares.
The re-investment is expected to raise A$688 million, lifting TPG’s free float from 23% to around 30% at current prices, and allowing minority holders to increase stakes.
The capital raise could be value-accretive by reducing debt, but flags potential dilution concerns depending on how the new shares are structured, Bell Direct senior market analyst Grady Wulff said.
TPG’s top shareholders, including CK Hutchison, Vodafone, Washington H Soul Pattinson, and the founding family, support the proposal and together hold around 77% of the register.
The company added it would use A$1.7 billion from the Vocus proceeds and the A$688 million raised to repay up to A$2.4 billion in bank borrowings
“We anticipate strong free cash flow generation over the coming years due to service revenue growth, operating cost efficiency, capital expenditure reductions, and lower borrowing costs,” said CEO and managing director Iñaki Berroeta.
However, TPG cut its annual pro-forma earnings forecast to a range of A$1.61 billion to A$1.66 billion, down from A$1.95 billion to A$2.03 billion, reflecting the absence of earnings from the divested assets.
Intensifying competition and new players are putting downward pressure on margins, and TPG’s revised outlook highlights the broader challenges all telecom providers are now facing, added Wulff.
($1 = 1.5451 Australian dollars)
(Reporting by Rishav Chatterjee in Bengaluru; Editing by Mohammed Safi Shamsi and Rashmi Aich)
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