Telecom's credit ratings are in line for a downgrade after Moody's placed it under review, concerned about the company's weakened position in an economic slowdown.
Moody's action affects Telecom's "long-term A2 issuer", "senior unsecured" and "P-1 short-term" ratings.
Telecom had seen its margins significantly eroded, and that was
not likely to reverse in a recession, said Moody's senior analyst Ian Lewis.
"The rating action reflects Moody's expectation of ongoing challenges ahead for the telco's core businesses amid heightened recessionary conditions in New Zealand, as well as a material weakening in financial metrics over a period of time, relative to its major peers," said Lewis.
Telecom is the country's dominant telco, but has been hit by rising costs and forced by the Government to split into three and open its network to competitors.
Moody's expected Telecom to increase its debt levels as a result of its capital-intensive turnaround and policy of maintaining high dividends, said Lewis.
The ratings review will focus on Telecom's ability to maintain appropriate revenues, earnings and cash flows; the effect of the company's transformation programme on debt levels and margins; and Telecom's strategies in an increasingly challenging environment.
In August, Moody's affirmed Telecom's ratings with a negative outlook.
Shares in Telecom were up 3c, or 1 per cent, at $2.39 in early afternoon trading.
- NZPA
