Germany Offloads €2.5 Billion in Deutsche Telekom Shares

(Bloomberg) -- Germany sold a €2.5 billion ($2.7 billion) stake in Deutsche Telekom AG, the latest in a series of moves by the cash-strapped government to divest from some of its corporate holdings.

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State-owned bank KfW sold 110 million shares to institutional investors on Monday. While the placement trims the aggregate holding of KfW and the government to a combined 27.8%, they remain Deutsche Telekom’s largest shareholders.

The finance ministry said the net proceeds will be used to strengthen the equity of state rail operator Deutsche Bahn AG and to build out Germany’s rail infrastructure. “Due to the receptive stock market environment, the placement was successfully completed,” the ministry said in an emailed statement.

In response to the sale, Deutsche Telekom said Tuesday it will increase its share buyback program by €600 million. The Bonn-based company initially announced the program in November to repay investors, who’d taken a hit when the company raised capital to increase its position in T-Mobile US Inc.

Deutsche Telekom shares fell 2% at 11:02 a.m. in Frankfurt on Tuesday.

The proceeds of the sale should help ease some of the pressure on Chancellor Olaf Scholz’s ruling coalition, after a key funding tool was struck down by the nation’s top court last year.

Adding to the squeeze on spending, Finance Minister Christian Lindner has insisted on restoring a constitutional limit on net new borrowing that was suspended to help deal with the fallout from the Covid-19 pandemic and the energy crisis.

Lindner is aiming to complete negotiations with his cabinet colleagues on next year’s finance plan by early July, before it’s sent to parliament for approval by lawmakers. His challenge is to balance budget frugality with efforts to lift Europe’s biggest economy out of a slump and modernize and expand the armed forces after years of neglect.

The government’s latest share sale is part of what the finance ministry called its “responsible privatization policy.” KfW earlier this year raised €2.2 billion selling a stake in former mail monopoly Deutsche Post AG.

As part of fundraising for investment in Germany’s rail system, Deutsche Bahn is currently gathering bids for its DB Schenker logistics unit, which could fetch more than €15 billion, people familiar with the matter said last month.

Lindner has also said he wants to sell the government’s 15.6% stake in Commerzbank AG, which it acquired during a bailout in the wake of the 2008 financial crisis. The most likely option is that the government will sell the shares on the market as it did with Deutsche Telekom and Deutsche Post, although private equity investors, sovereign wealth funds and other banks have expressed interest.

The books on the Deutsche Telekom stake sale are expected on Thursday, according to the terms. Morgan Stanley, JPMorgan Chase & Co. and Deutsche Bank AG carried out the placement.

The divestment comes less than three weeks after the telecommunications operator, Europe’s largest, beat first-quarter earnings estimates thanks to growth in its two main markets, Germany and the US.

The company’s shares have gained 1.9% this year. KfW already sold 22.4 million shares in the second quarter.

Meanwhile, Germany is nearing a decision to strip Chinese critical components from the nation’s 5G core network by 2026 — a move that will have a significant impact on Deutsche Telekom’s business. The Bonn-based company has said that a ban of Chinese components by that time is not realistic.

--With assistance from Michael Nienaber, Jillian Deutsch, Stefan Nicola and Kamil Kowalcze.

(Updates with shares, detail on Commerzbank stake)

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