Standard & Poor's is "likely" to cut Telecom Corp.'s long-term 'A' rating by at least a notch over the proposed structural split in its network and service units.
The rating agency kept the phone company's long-term rating at 'A' and its short-term rating at A-1, affirming its status on creditwatch with negative implications because it believes the proposed demerger will weaken Telecom's "strong business profile." The phone company offered to carve itself up in a bid to shed regulatory burdens and tap tax-payer funding to build the majority of a nationwide broadband network.
"If shareholders approve the demerger of Chorus, it will likely result, all things being equal, in a lowering of the long-term rating on TCNZ by at least one notch," analysts Paul Draffin and May Zhong said in their report.
"A rating outcome of 'A-' is possible for TCNZ if the group maintains an appropriately conservative capital structure and financial policies following the demerger."
Last month, Telecom outlined the likely split of its assets, though it didn't offer any details on where its debt will lie, saying it hadn't finalised its new capital structure.
