TCNZTelecom Corporation of New Zealand
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"The change in outlook to stable reflects the de-leveraging initiative post demerger through the transfer of debt to Chorus, and which will materially strengthen TCNZ's capital structure and debt coverage metrics.
According to Lewis, TCNZ's financial policies will be in line with the A3/P-2 ratings, amid competitive pressures, and will be adjusted in case of need.
When the separation is completed, which might take a considerable amount of time, TCNZ will be retail-orientated, with a focus on the fixed, mobile and ICT segments, the agency noted.
"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.
The move was prompted by TCNZ's announcement that it is examining a structural separation in order to take part in the New Zealand government's Ultra Fast Broadband initiative (UFB), the agency explained.
On 15 April 2010, the agency lowered TCNZ's long-term IDR and senior unsecured ratings to A-' from A and decided to keep them with a "negative" outlook.
Simultaneously, the agency stated that the "negative" outlook encompassed an elevated risk of structural separation and that, although not explicit, TCNZ risked having to take up a voluntary structural separation in order to participate in the UFB.
"Under this scenario, Fitch will assess the negative impact of more limited business diversification resulting from a structural separation against the potentially positive impact on TCNZ's financial profile of any cash inflows associated with the divestment of the network assets", the analysts said.
The agency also downgraded to BBB+ from A- TCNZ's senior subordinated rating and to F2 from F1 its short-term IDR.
Nevertheless, the ratings continue to incorporate TCNZ's strong domestic market standing, sufficient cash generation and domestic earnings margins, as well as its publicly articulated conservative financial profile.
In the rater's view, the government's proposed fibre-to-the-premise investment programme, ultra fast broadband (UFB), poses a significant threat for TCNZ.