Funds, wealthy investors fuel Telstra share demand

MELBOURNE, Nov 5 (Reuters) Wealthy investors are offsetting thinner demand from the general public for the Australian government's A$8 billion ($6 billion) sale of shares in Telstra Corp. Ltd., the sale's managers said on Sunday.

The retail offer of the sale closes on Nov. 9, ahead of the opening of the institutional offer on Nov. 15, which will set the final price for the sale.

Retail investors burned by a slump in the stakes they bought in the government's second sale of Telstra shares in 1999 are resisting the offer this time, even with incentives such as a share entitlement and a full dividend on partial payment for the stock.

Telstra shares last traded at A$3.95, down 47 percent from the A$7.40 price investors paid seven years ago. ''What we're finding is that perhaps the man in the street, they're confused and the applications -- there are probably perhaps a little less than we might have expected originally,'' said Terry Campbell, chairman of Goldman Sachs JBWere, one of the three investment banks managing the share sale.

''But that's more than being offset by higher demand from the wealthy end of the market - the higher net worth investors,'' he said on Australian Broadcasting Corp.'s Inside Business programme.

Telstra's shares have climbed about 10 percent in the past month as institutions, including offshore funds, look to secure entitlement to the so called T3 shares.

Investors will pay for the shares in two instalments. The first instalment has been set at A$2 for retail investors and A$2.10 for institutions. The price for the second instalment will be set by the institutional offer, with payment due in May 2008.

There has been no specific allocation yet for institutions.

The government has said it will release extra shares if demand is pumped up by existing shareholders taking up the one-for-two entitlement and retail investors applying for the full 2,000 shares to which they are guaranteed access.

But Campbell said the government and the sale brokers were wary of flooding the market with shares.

''The government doesn't have any interest in selling overpriced stock to voters. We don't have any interest in selling overpriced stock to interested buyers. And none of us have any interest in the price falling,'' he said.

Campbell said fund managers offshore attending Telstra's investor presentation ''roadshows'' had shown interest in the shares following a 15 to 20 percent rise in European and U.S. phone company shares this year.

''And there's been quite significant buying following on from those road shows,'' he said.

The government announced in August it would sell about A$8 billion of its remaining 51.8 percent stake in Telstra.

The rest of the stake will go into a separate investment fund set up to cover public service pension payments. The shares will remain in the fund for two years, after which it is free to sell them.

The government raised A$16 billion from the previous sale of a Telstra stake in 1999.

The joint global co-ordinators of the sale are Goldman Sachs JBWere , UBS and ABN AMRO Rothschild .

REUTERS DKS PM1422