Metway Slashes Rate For Telstra Investors

Sydney Morning Herald

Wednesday October 8, 1997

By ANTHONY HUGHES

Lenders are relaxing their rules to allow share investors to gear up for the $14 billion Telstra float.

Queensland-based Metway Bank looked to steal a lead over its competitors yesterday by offering individuals unsecured loans at a discounted interest rate of 9.95 per cent.

The rate compares with Metway's normal personal loan rate of about 12 per cent. Metway will lend from $5,000 upwards to individual investors, with October 27 being the last date investors can apply.

A spokesman for Metway said the bank expected reasonable demand for the float, given indications the float would be oversubscribed.

Federal Government restrictions on individual share allocations (8,000 for clients of stockbrokers) have prompted at least one specialised margin lender to loosen its lending criteria.

The deal covers only high net worth individuals who want to compete in the institutional book-build.

Any bid for Telstra of 150,000 shares or more will be deemed an institutional bid and the investor will have to compete with professional investors like AMP to get shares.

Leveraged Equities's marketing manager, Mr Hugh Latimer, said the group had lifted its gearing limit from 70 per cent to 85 per cent specifically for individuals who want to bid in the institutional offer for Telstra shares.

This means investors can contribute just 15 per cent equity and borrow 85 per cent through Leveraged Equity to a maximum of $5 million.

One month after Telstra lists, the limit will revert to 70 per cent, possibly forcing borrowers to pay the margin.

"Assuming the stock has risen, you could say that 15 per cent equity is covered in the share price," Mr Latimer said.

"We are bidding fairly aggressively on a margin loan. A lot of existing clients will do this," he said. "We have assessed [Telstra] to be a blue-chip stock."

Another major margin lender, BT Funds Management, said yesterday it would set its general gearing ratio for Telstra shares at 65 per cent of the market value of Telstra instalment receipts.

BT varies the ratio for each stock, with BHP at 70 per cent and less liquid stocks as low as 30 per cent.

Investors use margin lending to lift their portfolio beyond their cash limits and magnify the income and capital growth potential of an investment.

"Investors . . . should also recognise that while gearing offers the opportunity to increase your exposure to the sharemarket it also increases risk," said the head of BT Margin Lending, Ms Gillian O'Mulloy.