Telecommunications stocks tumble in Canada following sticker shock

Rogers Communications Inc. fell 2.3 percent, the highest since March, and other Canadian telecommunications stocks fell after a report that the country’s wireless spectrum auction may have raised about $ 8 billion ($ 6.4 billion).

The amount, reported by the Globe and Mail, suggests that at least one company “has become very unruly” and has spent significantly more than expected, according to TD Securities analyst Vince Valentini.

The figure of $ 8 billion “is shockingly high in our opinion,” Valentini said in a note to investors. The costs will inflate debt and hurt the value of stocks, he wrote, “but they could also negatively impact investor sentiment as we face two more auctions (3800 MHz and mmWave) over the next two years “.

Rogers, Canada’s largest wireless carrier by subscribers, ended the day down 0.4 percent in Toronto. The company’s bonds also weakened slightly. Western Canadian rival Telus Corp. saw its shares fall 0.6 percent and BCE Inc. fell 0.2 percent.

The three dominant domestic industry players are expected to be the biggest spenders in an auction that is a major step towards the rollout of faster 5G services. Shares of Cogeco Communications Inc. fell 1.2% and those of Quebecor Inc. fell 0.7%; both are regional companies that had to bid.

A spokesperson for the Department of Industry Canada declined to comment on the auction results.

RBC Capital Markets analyst Drew McReynolds predicted the three largest companies would spend a total of $ 3.25 billion in the auction, with Cogeco and Quebecor spending a total of $ 650 million, McReynolds said in a note to investors Wednesday night. The auction also included other regional telecommunications providers.

“It’s a little higher than the market expected, which was somewhere between $ 5 billion and $ 6 billion,” said Max D’Alessandro, fixed income portfolio manager at FDP in Montreal. “Telecommunications operators can leverage their lines of credit and stagger the issuance over time to reduce the impact of the simultaneous arrival of large contracts.”

McReynolds said a spectrum cost of this magnitude is “negative”, but the impact to shareholders is likely to be modest. Each additional expenditure of $ 500 million erodes BCE’s net asset value by 55 cents Canadian per share and Telus’s net asset value by 40 cents per share, the analyst wrote.

For Rogers, the hit comparable to NAV is around $ 1 per share, McReynolds said. Rogers is trying to buy Shaw Communications Inc., a Western Canadian rival that owns the No. 4 wireless service provider, Freedom Mobile.

McReynolds added that it is still not known how much each company spent, “as well as the associated nature and the amount of spectrum acquired.” The sale, which covers the 3,500 MHz spectrum, is expected to end by July 23, the Globe said.

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