Shareholders call for C&W probe

Graham Wallace has resisted calls to resign

A leading shareholder group has asked the City regulator to investigate whether troubled telecoms firm Cable & Wireless broke stock market rules by failing to reveal a possible £1.5bn tax bill.

The Association of British Insurers (ABI), whose members hold more than 20% of the shares traded on the London stock market, has written to the Financial Services Authority asking it to look into the affair.

The ABI has also written to C&W chairman Sir Ralph Robins asking why investors had not been told of the potential tax liability sooner.

C&W has lost nearly half its market value since Monday, when it revealed that a downgrade in its credit rating had obliged it to set aside £1.5bn to cover a possible tax bill arising from the partial sale of its mobile phone group One2One to Deutsche Telekom.

Investor shock

The firm had promised to ring fence the cash in the event of a credit downgrade as part of its contract with the German telecoms firm.

The revelation shocked investors, prompting calls for the resignation of C&W chief executive Graham Wallace.

C&W shareholders had previously asked the firm's management whether it faced any potential cash liabilities, and had been told it did not, according to reports.

C&W on Wednesday denied misleading investors. It said it had disclosed the obligation stemming from its deal with Deutsche Telekom as it was required to do.

FTSE exit

The latest slide in C&W stock has cost the company its place in the prestigious FTSE 100 index of leading shares.

The company was formally relegated from the FTSE on Wednesday following a 90% slide in its share price since the beginning of the year due to concerns over the firm's faltering performance.

Last month, C&W unveiled heavy losses and said it would cut 3,500 jobs as part of a restructuring strategy aimed at trimming costs by £400m a year.