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Telecom credit rating cut one notch to BBB+ by Fitch on demerger

Monday 31st October 2011

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Telecom’s long-term foreign currency credit rating has been cut one notch by Fitch Ratings, with the agency carrying out its threat after shareholders last week signed off on carving the company in two.

The phone company’s rating was cut to BBB+ from A- and put on a stable outlook, with the rating agency saying Telecom will face “additional competitive pressures” from other operators that aren’t banned from owning local loop fixed-line infrastructure. Telecom put forward the demerger proposal in a bid to cast off what it saw as an onerous regulatory burden and tap $1.35 billion of taxpayer funding to build a nationwide broadband network.

“Telecom’s migration from a fully-integrated business to a service provider will not only lead to loss of wholesale revenue, but also cost disadvantages compared to competitors that own their own infrastructure,” said Johann Kenny, director in Fitch’s corporate rating team.

Fitch put the phone company on notice for a possible downgrade in May, having already cut the ‘A’ grade rating by one notch last year.

In August, Telecom said it expected the new entities to would have lower credit ratings than the combined company, with Standard & Poor’s likely to rate the new retail unit an A- and the network business looking at a BBB rating.

The shares slipped 0.2 percent to $2.525 in trading today, and have gained almost 17 percent this year.


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