Spanish Net firm explodes out of trading gate

The Madrid-based company's American depositary receipts rose on the Nasdaq stock market to 39.38 in early afternoon trading from 13.41 after hitting a high of 54.5. In Spain, the shares rose 23 percent to 37 euros ($38.51) when regulators permitted trading following the market's close.

"There's a shortage of Internet companies in Europe," said Enrique Marazuela, chief investment officer at Aegon Union Aseguradora. "Terra is targeting Spanish- and Portuguese-speaking Internet users, a market that isn't covered very well from the U.S."

Telefonica, Spain's biggest phone company, sold 13 percent of Terra to money managers at 13 euros ($13.53) a share. Terra has a value of 10.2 billion euros ($10.62 billion), more than twice that of Freeserve, Europe's second-biggest Internet stock.

Use of the Internet in Latin America is expected to expand fourfold by 2003, and Terra is expected to reap the benefits because its parent is one of the biggest phone companies in the region.

Terra said that international money managers ordered 60 times the shares available to them, while Spanish individual investors ordered more than 89 times the number of shares available.

"We only got a pathetic amount of Terra," said David Donnelley, chief investment officer at Gordon House Asset Management in London.

The success of Terra's initial trading should encourage other former European telephone monopolies that are considering similar sales, analysts say. Deutsche Telekom and Telecom Italia may take their Internet units public in 2000.

Portugal Telecom sold shares in its Internet division, PT Multimedia-Servicos de Telecomunicacoes e Multimedia SGPS, last week. Shares rose 44 percent above the offer price yesterday when they began trading.

Trading in Terra's shares at the Madrid Stock Exchange were delayed in the morning to allow brokers to absorb a flood of orders for shares, stock market officials said. The shares soon reached their 15 percent maximum limit, and investors switched to trading ADRs on Nasdaq, where prices soared.

Spanish stock exchange regulators allow new listings to rise as much as 50 percent in pre-opening trading, when investors can bid for and offer shares but not execute trades. Once trading begins, the stock is then allowed to rise another 15 percent.

As demand for Terra was so high today, the Madrid exchange allowed it to rise as much as 100 percent in pre-trading, which brought the opening price to 26 euros ($27.06). It then was allowed to rise by another 15 percent. After the close of the exchange, shares were allowed to rise another 50 percent, bringing their value close to levels in the United States.

Maximum trading limits operate in many European exchanges, each using different rules. In France an initial 10 percent upward limit is imposed for 15 minutes. In London the exchange will automatically suspend a stock if it rises more than 20 percent, but only if it is an FT-SE 100 stock or one of about 47 other highly traded stocks.

"What all of this shows is that it is clear that the exchange rules should be harmonized," said Mark Henwood, a fund manager at Tilney Investment Management in London.

Telefonica sold about 13 percent of the Internet access provider to money managers, mutual funds and individual investors. The company sold an additional 10 percent primarily to pay some of its Latin American units for Internet assets that became part of Terra.

Goldman Sachs International led banks managing the Terra sale. Banco Bilbao Vizcaya, Argentaria and La Caixa also are managing the offering.

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