Windfall beckons for Telecom investors

Telecom will probably pay shareholders a special dividend of up to 60c if it sells the Yellow Pages Group, analysts say.

New Zealand's largest listed company said last week it was examining options for its Yellow Pages business, including a partial or full sale, or public float of the company. It may also keep the business.

Yellow Pages - which includes the online and printed versions of the Yellow and White Pages - is worth between $1 billion and $2 billion, say analysts.

Telecom chief financial officer Marko Bogoievski said recent transactions involving directories businesses overseas suggested a sale could deliver significant value to Telecom.

The company yesterday declined to comment on what it would do with the proceeds from any sale of Yellow Pages.

However, ASB Securities head of research, David Boyce, said if Telecom sold Yellow Pages there would be a "substantial amount" the company could return to shareholders as a special dividend or share buyback.

He said shareholders could expect a payout of between 55c and 60c.

Telecom reduced its dividend payout ratio for this financial year from 85 per cent of net profit to 75 per cent after reporting a substantial loss.

"If they have reduced their dividend it means they have retained more earnings in the business," said Boyce.

Telecom could use this for capital expenditure, which would free up more cashflow for dividend payouts.

Australian-based ABN Amro analyst Ian Martin said Telecom might keep some cash in reserve but shareholders could expect to see a special dividend of around 50c.

Forsyth Barr analyst Jeremy Simpson said any sale would focus on reducing debt and a return to shareholders.

He said Telecom's capital expenditure was under control and the only "wild card" was when it would build a new mobile network.

"They haven't given any detail around it because they haven't confirmed they are going to do it, but it's something that is going to happen at some point."

If Telecom chose to use the cashflow for a new mobile network then a dividend might not go ahead or could be reduced.

A special dividend of 55c to 60c would probably be warmly welcomed by shareholders who have seen the value of Telecom's stock plummet by $2.5 billion since May.

Telecom shares, which this month hit a 13-year low of $3.93 on concerns about heavier government regulation, surged 11c to $4.21 on the news of the possible Yellow Pages sale on Friday.

Shares in the company closed down 22c at $3.99 yesterday, after the entitlement to the fourth quarter's 7c dividend passed.

At the full-year result last month, Telecom reported a $435 million loss after writing down its Australian subsidiary AAPT by $1.29 billion. Capital expenditure has increased from $750 million a year to $800 million for the coming year in response to the newly regulated environment.

Telecom had to cut its dividend to 7c a share, down from 9.5c.

Communications Minister David Cunliffe predicted in May that Telecom might have to cut dividends to fund increased investment after his Government's decision to force it to open its network to competitors.

Telecom listed on the stock exchange in 1991 at $2 a share, and rose to a high of $9.80 at the start of 1999. In 2000, due to the dotcom crash, the stock plunged from $9.50 a share to just below $5.

Telecom's quarterly dividend ranged between 5c and 9.5c this year.