Agency cuts Telecom's credit rating

Telecom has had its credit rating outlook downgraded to negative from stable, after confirming plans to structurally separate its business.

Moody's Investors Service said the change in outlook reflected the uncertainty associated with Telecom's capital structure and financial policy post-separation.

The change affects Telecom's A3 senior unsecured long-term rating and P-2 short term rating.

The Government announced yesterday that Telecom had won almost 70 per cent of its ultra-fast broadband (UFB) tender and will split off its network arm Chorus into a separate company, pending shareholder approval, by the end of the year.

"The change in outlook to negative reflects the earnings dilution and narrowing of business mix that will arise from the proposed separation of Chorus and therefore the loss TCNZ's legacy copper network," said Moody's Senior Credit Officer Ian Lewis.

The negative outlook also considered the lapse in time before the separation took effect, Moody's said.

"While a structural separation would likely carry negative rating pressure, the assumption of a conservative financial profile through debt reduction will be a supportive rating consideration," Lewis said.

Moody's said it would monitor developments associated with the structural separation and assess their impact on Telecom's rating.