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Fitch Assigns Telstra's AUD500m 2018 Bonds 'A' Rating
November 11, 2013 / 4:05 AM / 4 years ago

Fitch Assigns Telstra's AUD500m 2018 Bonds 'A' Rating

(The following statement was released by the rating agency) SYDNEY, November 10 (Fitch) Fitch Ratings has assigned Australia-based Telstra Corporation Limited's (Telstra; A/Stable) AUD500m senior unsecured notes due November 2018 a rating of 'A'. These notes are issued from Telstra's EUR15bn debt program dated 7 October 2013. The notes rank pari passu with Telstra's other unsecured and unsubordinated obligations and therefore are rated at the same level as Telstra's senior unsecured class rating. KEY RATING DRIVERS Market-Leading Position: Telstra's ratings reflect leading market share in the fixed-wire and wireless communication markets. Telstra's competitive advantages are its superior coverage, the reliability and technology leadership of its wireless network, the coverage and capacity of its backhaul network and its ownership of a material share of domestic mobile spectrum. The company's strong free cash flows, relative to competitors', enable it to sustain this advantage and facilitate growth in mobile voice and broadband margins while increasing market share. The nature of competition in the Australian mobile telecommunications industry is unlikely to change in the near future, since its low population density and the lack of available spectrum deter potential new entrants. Low Risk from NBN Review: We believe Telstra is well-positioned to deal with the likely outcomes from the government's current review of the National Broadband Network (NBN) policy. In the event that the NBN agreements are terminated, Telstra will continue to have a contractual right to receive infrastructure rental payments for equipment leased to NBN Co. and could resume its fixed-wire incumbency in areas not covered by the NBN network. Moreover, should the NBN be rolled out to over 20% of target premises by the time the new NBN legislation is passed, Telstra will be entitled to a AUD500m termination payment. Prudent Capital Management Strategy: Telstra has been prudent in its approach to distributing surplus free cash flow from the NBN transaction to shareholders. The company has indicated that it intends to distribute surplus free cash flows that accumulate after setting aside funding for investment expenditure, future capital commitments and funding requirements to retain financial flexibility. The model employed by Telstra should ensure that the company's leverage will not be materially affected by the payment of special dividends. RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, lead to negative rating action include: - Funds flow from operations-adjusted net leverage rising above 1.75x on a sustained basis - A material adverse change to the terms and conditions of the NBN agreements - Negative free cash flow after dividends on a sustained basis Positive: Given sector-related risks a rating upgrade is unlikely in the medium term. Contacts: Primary Analyst Sajal Kishore Director +61 2 8256 0321 Fitch Australia Pty Ltd. Level 15, 77 King Street, Sydney, NSW 2000 Secondary Analyst Steve Durose Senior Director +61 2 8256 0307 Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: Additional information is available at Applicable criteria, 'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage', dated 5 August 2013 are available at Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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