Fitch Ratings today affirmed Telecom's credit rating but said if the company goes ahead with structural separation a negative rating action could result.
Yesterday Standard&Poor's affirmed its A long-term and A-1 short-term corporate credit ratings for Telecom but revised the outlook to negative from stable, citing confirmation that the company was considering a structural separation of its copper network from its remaining businesses in order to participate in the Government's proposed ultrafast broadband (UFB) network.
Fitch already had a negative outlook in its A minus rating of Telecom.
Fitch said today that Telecom's announcement confirmed what it was already assuming and Telecom would undertake a detailed analysis of structural separation before any decision was made.
If Telecom confirmed it had finished its analysis and had decided to move forward with separation then a negative rating action could result, Fitch said.
"Under this scenario, Fitch will assess the negative impact of more limited business diversification resulting from a structural separation against the potentially positive impact on Telecom's financial profile of any cash inflows associated with the divestment of the network assets," Fitch said.
The extent of any downgrade would be heavily influenced by the balance of these two broad credit considerations.
Telecom's chief financial officer Russ Houlden said yesterday that the company remained committed to maintaining single A credit ratings with both Moody's and S&P.
Yesterday S&P said it considered Telecom's vertically integrated business model to be a key driver of its strong risk profile.
S&P said its rating could be lowered in the next 12 to 18 months if Telecom agreed to structurally separate its copper access network from the rest of the group, the group's financial profile deteriorated, or there was a significant shift in earnings mix to lower-quality earnings sources, such as information technology services.
The prospect of structural separation came at a time when the group continued to face operating and competitive challenges in its core mobile network business, S&P said.
The company would become increasingly dependent on its mobile business and its large but increasingly competitive fixed-line retail business if separation proceeded, S&P said. Its lower credit quality information and communication technology and Australian businesses would become a larger contributor to group earnings.
Telecom's share price fell to a new record low of $1.90 today. Brokers say there is enormous uncertainty surrounding the company on a range of issues, making for a complex situation for investors to assess.