Telecom NZ credit rating cut to A- by Fitch after revised earnings guidance

Friday 16th April 2010

Telecom Corp.’s credit rating was cut one notch to A- by Fitch Ratings after New Zealand’s biggest phone company cut its guidance for earnings over the next three years while forecasting an increase in capital spending.

Fitch said the rating outlook is ‘negative’ and said a further cut may follow any deterioration as a result of regulatory moves including possible structural separation of Telecom. Shares of the company slipped 0.5% to $2.17 on the NZX today and have declined 10% this year.

The rating cut and negative outlook reflects “the significant challenges associated with growing competition in all the segments (Telecom) operates in,” Fitch said in a statement. That’s “largely driven by regulatory change, a heightened risk of structural separation or a competing government-funded fibre-optic infrastructure.”

The government plans to part fund a fibre-to-the-home investment programme as part of efforts to speed the update of broadband it sees as essential to maintaining New Zealand’s competitiveness. The government has signaled it will allow competing bids to build parts of the network, unravelling Telecom’s existing monopoly.

The plans pose “a significant threat” to Telecom, Fitch said. Other factors that could lead to a further lowering of the credit rating include leverage remaining above 2.5x or a material contraction in earnings margins, it said.

Yesterday, Telecom cut its earnings guidance for 2011 to 2013. Telecom now expects to make EBITDA of between $1.72 billion and $1.78 billion in 2011, down from previous guidance of between $1.82 billion and $1.855 billion.

Telecom also cut its forecast for capital expenditure this year to between $1 billion and $1.1 billion, from $1.1 billion to $1.2 billion, and flagged new capital expenditure of between $1 billion and $1.1 billion in 2011, a figure that hadn’t previously been provided.

Businesswire.co.nz

Comments from our readers

No comments yet