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Telecom NZ's A3 credit rating affirmed by Moody's after split, outlook stable

Thursday 1st December 2011

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Telecom Corp.’s credit rating was affirmed by Moody’s and the outlook raised to ‘stable’ from ‘negative’ following the completion of the Chorus demerger yesterday.

The phone company has an A3 senior unsecured long-term rating and P-2 short-term rating. The improved outlook reflects the de-leveraging since the demerger, which saw more debt transferred to the Chorus network company.

The ratings agency said the loss of Telecom’s core asset will weaken its earnings and cash flows.

“We expect TCNZ’s new financial profile to be commensurate with its changed operating profile that now reflects an overall weakened business model, though counter-balanced to an extent, by a now significantly reduced regulatory impost which had been clouding TCNZ’s credit profile,” said Ian Lewis, a Moody’s vice president and senior credit officer.

Moody’s said further downward rating pressure would occur if Telecom embarks on a acquisition of 4G spectrum, which would place pressure on the company’s financial profile.

Chorus was carved out of Telecom, chosen by the Crown to build a fibre network for about 830,000 premises, representing approximately 70% of the UFB initiative. In all, Chorus expects to deploy about 20,000 kilometres of fibre for the UFB and Rural Broadband Initiatives by 2020.

The new fibre network will complement Chorus' existing fibre and copper network that provides about 1.8 million connections. A wide range of service providers use the network to deliver fixed line phone, broadband and data services to homes and businesses.

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