BT hit by property rule change

Leaseback deal bites back

By John Oates • Get more from this author

Posted in Financial News, 8th February 2005 15:51 GMT

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Telco behemoth BT might see its bottom line hit by changes to accounting rules relating to leasing or renting property.

The change is important because in 2001 BT sold £2.4bn of property to Land Securities Trillium to help it cut its massive debt mountain. BT leases back the 6,700 properties which include call centres, local exchanges, vehicle depots and warehouses.

But property must now be accounted for under standard IAS 17 which changes the way leases are defined. Many leases are likely to change from "operating leases" to "finance leases". Finance leases mean that payments to the landlord are considered interest rather than rent and so must be considered an asset and a liability.

The change is likely to make it more expensive for BT to borrow money. Land Securities is writing off a massive £659m exceptional charge for the changes.

In late January it emerged that the European Commission is to investigate BT and Kingston over allegations that they enjoyed illegal state aid from paying reduced business rates. The government used different methods to judge the rateable value of properties owned by Kingston and BT. The investigation followed complaints from Vtesse Networks. ®