BT retreats from Japan and Spain

Sir Christopher Bland will oversee BT's debt reduction programme

BT is on the verge of selling its stakes in Japanese and Spanish businesses to arch-rival Vodafone.

The sale of stakes in Japan Telecom and its wireless arm J-Phone is expected to raise about £3bn ($4.3bn) and will help BT reduce its £30bn debt mountain.

BT is also discussing selling its 17.8% stake in Spanish mobile operator Airtel, estimated to be worth about £1.5bn.

The announcement that BT and Vodafone were in advanced talks over the sales came on the day Sir Christopher Bland, BBC chairman, took up his new position as chairman of BT.

Analysts said the Japan Telecom sale was, on the face of it, a good deal for BT, which had bought the stake for £1.2bn two years ago.

But they said a foothold in Japan - the world's second largest telecoms market - was highly desirable and BT was selling reluctantly.

Testing ground

Japan Telecom - and its wireless unit J-Phone - is rated highly among telecoms companies partly because Japan is an important testing ground for third-generation (3G) mobile phone technology.

BT holds 20% of Japan Telecom and 25% of J-Phone.

Last month, it also acquired options allowing it to buy about 5% of J-Phone's three regional operators - a deal seen as making BT's overall Japan holding more attractive and clearing the way for a sale.

Selling the stakes to Vodafone - already a major shareholder in both Japan Telecom and J-Phone - would hand BT's rival a strong position in the Japanese market.

The deal would give Vodafone a 45% stake in Japan Telecom - the country's third largest carrier - as well as 46% of J-Phone.

Vodafone already owns 73% of Airtel.

Intense pressure

BT is under intense pressure from shareholders to reduce its debts and do so in such a way that limits destruction of shareholder value.

Plans to float the wireless division - which includes prime assets such as UK operator BT Cellnet - have been put on the backburner because of depressed market conditions.

But stakes in international operators have come to be regarded as expendable.

BT had seen its rival Vodafone build up stakes in Japan Telecom, J-Phone and Airtel to dominant positions. Having failed to prevent this, BT's stakes began to look increasingly unattractive for shareholders.

BT's exit from Japan and Spain had been widely predicted. But the sale of the Airtel stake had been expected to come through a public offering rather than a trade sale.

BT's other international assets include wholly-owned operations in Germany, Ireland and the Netherlands and joint ventures including Blu - an Italian mobile operator that failed to win a 3G licence - France's Cegetel.

A 22% stake in South Korea's LG Telecom is also thought to be up for sale, but so far BT has failed to find a buyer.

Rights issue

BT has taken several other measures to raise cash, and is reported to be considering several others.

A sale and leaseback deal for its property portfolio is likely to raise £2bn, while a vehicle leasing scheme is thought to be bringing in £1bn.

The firm is also expected to pursue plans for a £5bn-10bn rights issue, under which existing shareholders would be invited to buy new shares at a discount.

The departure of previous chairman Sir Iain Vallance is widely regarded as the price for securing support of key shareholders for a rights issue.

BT is also in discussions with a private equity group over the sale of Yell, its yellow pages division.

BT shares have recently hit three-year lows amid growing investor concern about the company's debt levels.

Tuesday's announcement gave the shares a lift. At the close, they were 7.3% up at 599 pence.

Vodafone lost 2.8% to 206.25p while Japan Telecom gained 8.7% in Tokyo trade to reach 2.24m yen.