UBS eyes Asian deals in Telstra 3 study

COMMENTARY: UBS will draw on its successes with China Telecom, Star Hub and Peoples Phone when it reviews the third and final sale of Telstra shares in Australia worth an estimated A$32 billion.

Last week, UBS and Caliburn Partnership were appointed by the Australian government to conduct a scoping study into the possible sale of its remaining 51.8 percent shareholding in the national telco.

The appointment does not guarantee UBS a role in the actual sale but certainly gives it a leg up, making it a favourite for the global coordinator role which is likely to generate fees of between A$20 million and A$50 million.

Sources have confirmed that executives from the bank's Asian offices will form part of the study team –- a team understood to be 20-strong. And that a string of Asian telco deals completed under the stewardship of Asian CEO Rory Tapner and head of TMT James Roth, were included in the bank's pitch to the government.

The advisers are bound by strict confidentiality rules and have made no formal comment on the long-awaited appointment.

In a statement, minister for finance and administration, Nick Minchin, said UBS would have overall responsibility for producing the scoping study, while Caliburn Partnership, an independent corporate advisory firm based in Sydney, would be giving specialist advice including "advising the government on ways to minimise the costs of the sale".

Interestingly, Caliburn's role as a business advisor can be extended through the sale process without the need to re-tender, giving it a lot of power in determining the make-up of the final team of global co-ordinators and the selection of secondary brokers.

Reducing the cost of the sale is a political imperative for the government. There was some talk by senior government ministers earlier this month that Telstra might even sidestep the investment banks, choosing to sell its shares directly to institutional and retail investors. It is still considering a Google-style share auction.

Caliburn will be trying to get the best deal for its client. Last year the boutique firm advised British Airways on its block trade of A$1.1 billion in Qantas shares, the biggest secondary offering in the Australian market in 2004. The firm stirred up competition between the four shortlisted banks and eventually picked Citigroup because of its ability to underwrite the deal and reduce the risk for British Airways. Citigroup is also said to have undercut rivals on price.

Just how much the banks will make from fees on the Telstra sale, if it actually goes ahead, is unclear. The government certainly managed to squeeze fees on the first two tranches paying A$39.6 million to global co-ordinators on T1 and A$13.6 million to the arrangers of T2. Brokerage fees on T1 were less than 0.9 percent, and only 0.4 percent on T2.

UBS beat 12 other investment banks to the job on the scoping study. In the lead up to last Tuesday's announcement there was much speculation that Goldman Sachs JBWere would be picked for the role, meaning that the UBS win came as a surprise to some.

The government has given no indication why UBS was chosen for the role. The three global co-ordinators of the first two Telstra sales -- ABN AMRO, Goldman Sachs JBWere and Credit Suisse First Boston -- missed out.

UBS certainly deserves the gig. The bank missed out on the first two Telstra sales because of its conflicting role in the IPO of rival Optus. UBS's global privatisation and telco credentials stack up. And it currently tops the league tables for most investment banking activities in Australia too.

Last Tuesday's statement from the government included news that it is commissioning a report into alternative selling methods such as a Google-style auction. Though market talk says that this report is likely to be conducted by an economist rather than an investment bank. The appointment of this advisor will be made in early May.

The government is paying just A$2.5 million to all seven advisors in the scooping study phase, including the two business advisers, the alternative selling methods advisor and advisers on legal, probity, communications and market research issues. This suggests that if UBS is is likely to lose money on the job, if it is indeed assigning 20 executives to the task.

There has been no deadline given for the completion of the UBS/Caliburn scoping study, though it is expected to take several months.

The study will review strategies such as spinning off Telstra's A$10 billion directories business called Sensis, and the sale of its Hong Kong mobile phone business, CSL.