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Wednesday, 23 May, 2001, 17:45 GMT 18:45 UK
Small investors warned over BT shares
BT graphic
BT shareholders have until 14 June to decide over the rights issue
Several leading stock brokers have recommended that small investors who own British Telecom shares should sell their rights to buy new shares in the company at a discount.


We certainly believe that prospects for other companies in the sector are better than they are for BT, and on that basis we would say it makes more sense to sell than it does to take up

Gavin Oldham
Share Centre
BT has asked its existing shareholders to hand over more money, in exchange for discount shares, in an effort to pull it out of financial difficulties.

But small investors keen to take part would be stung by commissions and dealers' costs, said Richard Hunter, head of dealing services at NatWest Stockbrokers.

And since most investors with small BT positions hold paper shares rather than more easily traded electronic shares, it would be difficult for them to 'tail swallow' - a strategy favoured by pension funds, insurance companies and other institutional investors.

Tail swallowing involves selling some rights to buy.

The income from the sale is then used to finance the exercising of the rest of the rights to buy.

"We certainly believe that prospects for other companies in the sector are better than they are for BT, and on that basis we would say it makes more sense to sell than it does to take up," said Share Centre chief executive Gavin Oldham.

Barclays Stockbrokers, the number one broker for retail investors, and several other brokerage houses also recommended small investors to sell their rights.

Institutions selling

If many investors fail to buy the BT shares, the stock's price could fall.

Some institutional investors have been selling their rights to buy discounted BT shares.

"It does indicate a certain unwillingness to keep a stake in BT," said Mr Lapwood.

But, he added: "The rights issue won't flop. There are bigger issues at stake, and there is a long way to go yet. BT will get its money".

In the City, BT shares closed down 19.5p at 427.5p on Wednesday.

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See also:

23 May 01 | Business
Q&A: BT rights issue
21 May 01 | Business
Trade starts in BT share rights
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BT launches GPRS phones
17 May 01 | Business
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Bland invests in BT
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BT attacks debt mountain
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