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S&P keeps Telecom on creditwatch negative; cites Crown Fibre uncertainty

NBR staff
Fri, 18 Mar 2011

Standard & Poor's has maintained its 'A' long-term and 'A-1' short-term ratings on Telecom on credit watch with negative implications (originally placed on August 4 2010)

"In our view, significant regulatory-driven uncertainties remain surrounding Telecom's future earnings and asset composition," Standard & Poor's credit analyst Paul Draffin said.

"If Telecom agrees to demerge its fixed-line access network and part of its wholesale division into a new standalone company, it will likely result in a lowering of the long-term rating by one or two notches." 

The agency said the final rating outcome will however depend on a number of key issues, including:

  • The composition of assets remaining within Telecom following the demerger;
  • The allocation of debt between the demerged access network company and TCNZ's remaining businesses
  • TCNZ's financial policy framework; · The outlook for revenue and market share performance from the group's mobile business
  • Revenue and margin expectations for the fixed-line retailing business; and
  • The group's strategy regarding its ancillary businesses, particularly its ICT services businesses and its remaining Australian operations.

Mr Draffin added: "If Telecom does not structurally separate its access network business, it should be adequately positioned at the ‘A’ rating to compete with the ultra fast broadband (UFB) network and retain a strong market position in fixed-line networks in the medium term.

"However, retention of the ‘A’ rating would be reliant on a number of key factors, including Telecom successfully executing an effective strategy to compete with any future UFB network, and maintaining a modest financial risk profile."

Telecom shares (NZX: TEL) fell 0.5% today to $1.98

NBR staff
Fri, 18 Mar 2011
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S&P keeps Telecom on creditwatch negative; cites Crown Fibre uncertainty
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