Moody’s big Telstra turn-off

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Top international investment agency Moody's Investor Services has downgraded Telstra's rating outlook, citing diminished prospects for growth and high dividend payouts.

Moody's said it had lowered expectations for revenue growth at Telstra, moving its rating outlook for the company from stable to negative. At the same time, the company said the increase in dividend payments at Telstra – now apparently set at 22 cents pre share per annum – reducing the company's flexibility.

The Moody rating considers risks associated with the impact of an evolving competitive environment on revenue streams and relatively high and increasing dividend payouts. Dividends at Telstra grew from 60 percent of net profit on 2001 to 77 percent of net profit in 2002).

Moody's said the Federal Government's 50.1 percent shareholding in Telstra would limit the company's ability to access equity markets, or to institute a dividend re-investment program.

Moody's outlined residual concerns regarding the performance of Reach, Telstra's 50 percent joint-venture in Asia.

Reach has a strategically important network throughout Asia, which may provide Telstra with access to future revenue growth. Moody's said this may influence Telstra should there be a requirement to support Reach over and above current levels of commitment.

In particular, Reach's US$1.5 billion bank loan presents a potential liability to Telstra, albeit it has been extended on a non-recourse basis and Telstra has made no statements of support.

Telstra blamed the global downturn in the telecommunications industry for the change in the Moody's rating.


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