Sale could keep Telecom dividends up

The sale of Telecom's Australian business could keep dividends up, says an industry analyst.

Rumours around the possible sale of Telecom's Australian business, AAPT, gathered pace with Telecom chief executive Paul Reynolds not ruling it out last week. He said AAPT was not seen as core to its mainstream business in New Zealand and would consider any offers that were in the interest of shareholders.

Forsyth Barr's Guy Hallwright, who is forecasting a dividend cut to 16c in the next financial year, said the sale of AAPT could help maintain the current payout. "If you sold AAPT that would change that because AAPT at the bottom line contributes losses and obviously if you've got cash in the tin, your debt goes down and you've got less interest payments. That would raise the dividend profile if you could do that."

Telecom would want to retain some capacity to service transtasman corporate clients in Australia, but the consumer business and network assets could be sold.

Hallwright said between A$400 million to A$450 million ($522 million to $590 million) would be a fair price, roughly in line with its book value. He estimates if AAPT was sold for between A$450 million and A$550 million it would eliminate about $100 million in pre-tax losses and reduce interest costs, which could increase his dividend forecast.

Telecom will pay shareholders a 24c a share dividend this financial year and will outline its dividend policy for the coming year at its investor briefing day next month. Shares closed at $2.18 on Friday.