Telstra pounded by NBN decision

TELSTRA’S bid to monetise up to $5.5 billion worth of future income from national broadband network payments has been shot down by the company rolling out the network.

Shares in the telco slumped to their lowest level in five years yesterday after it revealed NBN Co had refused to provide consent for the proposed financial transaction.

The move is a fresh blow to Telstra’s plans to minimise the impact of the NBN on its balance sheet, with the monetisation strategy designed to free up capital sooner rather than later.

Analysts labelled the development “highly negative” for Telstra.

Telstra said in a statement: “While the proposal is well progressed and supported by

equity and debt investors, Telstra has been advised ... that technical consents from NBN Co will not be forthcoming.”

In the wake of the revelation, its shares slumped 6 per cent to close at $3.61.

That is the lowest level for Telstra shares since June 2012.

It comes less than two weeks after they plunged 10.6 per cent in one session when the group, Australia’s biggest telecommunications company, flagged cuts to its dividends next year. More than 16 per cent has since been stripped from its share price in an $8.6 billion rout.

In its statement yesterday, Telstra quoted NBN Co as saying: “Essentially we can’t see how NBN’s position can be protected/improved by Telstra’s securitisation plan especially given the unpredictability of our operating environment in the 2020s.”

CLSA analyst Roger Samuel said Telstra management had previously indicated the approval process for the plan would be straightforward.

“This is highly negative for (Telstra) given the lack of funds available to be used for debt repayments and a share buyback,” Mr Samuel said.

Analysts at investment bank Citi said the rejection meant that proposed share buybacks Telstra intended to fund with the NBN cash were unlikely to proceed.

Telstra announced the proposal to the market on August 17 as one of the outcomes of a capital allocation review that began last November. Telstra chief Andy Penn said at the time the process would reduce debt by about $1 billion.

The recurring payment from NBN Co to access Telstra’s pits and ducts infrastructure is expected to grow to just under $1 billion a year by the time the NBN is completed.

Under the agreement between Telstra and the federal government struck in 2011, the telco is set to receive $11 billion in compensation for the use of its copper network. The lease payments from NBN Co are set to run until 2045 and Telstra was hoping to securitise about 40 per cent of the money it will receive from NBN Co.