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Chorus-free Telecom begins capital structure review

Wednesday 7th December 2011

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Telecom is to review its capital structure to ensure it retains an ‘A-band’ credit rating following its demerger from Chorus, which owns most of the telecommunications infrastructure previously held by the combined company.

The announcement from Telecom chief executive Paul Reynolds was widely expected and follows both Standard & Poor’s and Moody’s Investors Service signalling earlier this year their intention to downgrade Telecom on the basis of its weakened commercial position post-merger.

Chorus has taken on most of the combined company’s net debt at about $1.7 billion, while New Telecom will have between $750 million and $950 million of debt.

S&P said it was likely to cut Telecom’s A rating by a notch.

“A rating outcome of 'A-' is possible for TCNZ if the group maintains an appropriately conservative capital structure and financial policies following the demerger,” said analysts Paul Draffin and May Zhong said a report in August, before the demerger.

In September, Telecom sweetened the interest rates on its Telebond offering in anticipation of a weaker credit rating, and undertook to raise rates further in the event its rating fell to into the “B” range.

In a statement to the NZX today, Reynolds said “post demerger, scope exists for some form of capital management, while still maintaining an “A band” rating, with further information to be provided at its half year results, next February.

BusinessDesk.co.nz



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