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Saturday, July 11, 2020

Saudia Arabia builds BT stake in pandemic bargain hunt

Shares in the former state telecoms monopoly have fallen 40pc this year, valuing the company at less than £12bn
Continue reading on Telegraph.co.uk

Saudi Arabia is believed to be building a stake in BT as part of a global shopping spree for blue-chip bargains during the pandemic.

Three sources close to BT said the kingdom’s sovereign wealth fund, the $325bn (£263bn) Public Investment Fund (PIF), has been buying up shares on the open market in recent weeks.

The investment comes with BT close to its lowest ebb in a decade. A combination of badly dented market confidence in its prospects and the broader coronavirus slump have left the former state telecoms monopoly with a stock market valuation of only £11.7bn, less than it paid in 2016 to ­acquire its mobile arm EE.

The stake it is believed is being built by the PIF is significantly lower than the 5pc threshold at which it would be obliged to notify the stock market.

It is understood, however, that BT advisers have been tracking a new ­investor in the market for some weeks.

Brokers cannot be certain who is ­behind the purchases because they are made via derivatives, but all signs point to Saudi Arabia.

Senior BT executives are also convinced, sources said, after the company received an approach from the PIF at the height of the pandemic in April.

It is understood that the two sides held talks about a potential issue of new shares to help fund the multibillion-pound rollout of full-fibre broadband across the country.

BT did not opt to pursue new funds, but suggested it would welcome a new long-term investor such as the PIF.

Chief executive Philip Jansen has been attempting to engineer a shift in the company’s core shareholders away from its traditional base of City pension funds focused on dividend income.

After suspending the payout this year and cutting next year’s by a third, he aims to repeat his success at the payments processor Worldpay in attracting investors such as Singapore’s sovereign wealth fund GIC.

Such funds tend to be more sanguine about dividend income and focused instead on long-term growth opportunities.

It signals mounting frustration at BT about the company’s depressed share price. Mr Jansen argues the rollout of full-fibre by the network subsidiary Openreach will create a valuable shift towards the sort of prized returns offered by water and power companies.

The market is yet to be persuaded, however, as he attempts to secure the regulatory framework for the new technology and BT faces a revaluation of the funding deficit in its £60bn pension scheme in the coming months.

In an effort to underpin the investment case for full-fibre and his vision of BT’s future, Mr Jansen is attempting to convince Ofcom, the telecoms regulator, to allow wholesale discounts for major broadband retailers such as Sky to encourage them to sign long-term contracts.

The plan has prompted ­competition concerns, not least from smaller rivals who aim to challenge Openreach and fear being shut out.

Saudi Arabia is believed to be taking a position in BT as it places bets around the world on companies it believes are fundamentally strong in an effort to reduce its dependence on oil revenues.

Since coronavirus hit, the PIF has disclosed stakes in BP, Shell, Boeing, Live Nation, Disney, Facebook and the Indian telecoms operator Jio Platforms.

BT and the PIF both declined to comment.

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