5 Aug 2010

Lower rating likely if Telecom split in two

10:02 pm on 5 August 2010

Standard & Poor's ratings agency is likely to lower Telecom's credit rating if the company splits its operations to take part in the Government's $1.5 billion ultra-fast broadband plan.

Earlier this week, Telecom submitted a proposal to Crown Fibre Holdings to split its network and retail operations into two standalone companies.

Standard & Poor's credit analyst Paul Draffin says Telecom's A long-term rating was assigned a negative outlook in May when it announced it was assessing a potential separation.

But Mr Draffin says the release of the proposal increases the likelihood of the split occurring and it has now been placed on credit watch negative.

If the separation does go ahead, Mr Draffin says the agency is likely to lower Telecom's rating by one or two notches.

He says S&P's final rating will depend on how assets and debt are spread between the new companies and the outlook for revenue and market share.

Company response

Telecom wants to retain its current credit rating.

It says it believes its proposal aligns the interests of the company, shareholders, the Government and New Zealanders and it remains committed to maintaining its current rating.

Shares in Telecom slipped 1 cent to $2 on Thursday morning.