Canada's telcos raise
cheap money in internet bet, Fed hikes loom
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[August 13, 2016]
By Alastair Sharp
TORONTO (Reuters) - Canadian telecom
companies are rushing to secure cheap money to fund acquisitions and big
infrastructure projects as their reliance on customer appetite for
internet services grows.
Take Canada's BCE Inc, better known to its millions of internet and
telephone customers as Bell, which this week raised C$1.5 billion ($1.2
billion) in debt, in part to pay down more expensive loans and fund its
takeover of a data center business.
But the window to borrow so cheaply may close if the U.S. Federal
Reserve raises rates further this year, which would broadly increase
corporate borrowing costs.
Bell and the country's other big operators produce relatively strong
earnings growth and free cash flow, and are seen as less volatile than
similarly-rated corporate debt issuers such as oil and gas companies.

This and their ability to turn bigger profits than more heavily
regulated utilities make them attractive to investors facing otherwise
dismal returns on government debt or stocks.
"If you lose your job, the last thing you're going to give up is your
cell phone," said Adrienne Young, portfolio manager and director of
credit at Franklin Bissett Investment Management.
Historically low borrowing costs are boosting cash flow at Bell, Telus
Corp and Rogers Communications Inc by about C$500 million a year,
Desjardins analyst Maher Yaghi wrote on Thursday. He upgraded Telus to a
"buy" recommendation and increased target prices across the industry.
Bell got its best-ever rate on this week's debt, which pushed its annual
pre-tax financing costs down to 4.56 percent with an average maturity of
more than nine years.
If the Fed starts hiking, that could be as good as it gets.
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A woman uses a mobile device while walking past a Telus store in
Ottawa February 19, 2014. REUTERS/Chris Wattie

"This might be the bottom," said Barry Schwartz, a portfolio manager at Baskin
Financial. "If you're a CFO of a publicly traded company, you've got to be
running the numbers right now to finalize acquisitions and raise debt."
Bell raised the debt partially to buy out its partners in Q9 Networks Inc. It
also wants to buy regional telecom operator Manitoba Telecom Services and spend
billions to upgrade its networks to deal with growth in mobile video and other
internet-heavy uses.
Investors will find telecom debt worthwhile, but not forever, Schwartz said.
"At some point, people are going to rebel against it because the yields are just
God-awful," he said. "But in the meantime there is insatiable demand for the
internet and insatiable demand for fixed income."
(Editing by Matthew Lewis)
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