BCE to create Bell Canada income trust

12 Oct 2006

Canadian group BCE yesterday announced that it will unwind its holding company operations and convert its wholly owned Bell Canada telecoms assets into an income trust. The proposed Bell Canada Income Fund’s initial cash distribution will be CAD2.55 (USD2.25) per unit, up from the current BCE dividend of CAD1.32 per share, with a targeted payout ratio of 85% in 2007. The announcement follows the recent example of rival Telus Corp which has also revealed plans to convert to an income trust. In July BCE moved Bell Canada’s rural wireline business into an income trust with its majority-owned subsidiary Aliant’s regional fixed line operations under the Bell Aliant banner. The move to an income trust structure is designed to increase shareholder value and provide huge tax savings for BCE, one of Canada’s biggest corporate taxpayers. However, the government, which stands to lose millions of tax dollars from such a move, says it is concerned about the trend of trust conversions. Canada has around 250 trusts, with a combined market value of around CAD200 billion. They have become a popular investment vehicle because trusts pay most of their cash flows to investors, unlike corporations, which pay dividends to shareholders. Michael Sabia, CEO of BCE and Bell Canada, said the timing of the conversion is in line with the company’s strategy going forward and the direction of the telecommunications industry as a whole. He added: ‘In our minds, BCE was a company that was conceived in a different time for a different purpose – a purpose that was all about diversification away from [incumbent telco] Bell… The strategy we’ve been pursuing over the last three years is not about diversification but about focus.’