Telecom sale of AAPT in wind

The sale of Telecom's under-performing AAPT Australian business will likely result in a special dividend which may favour New Zealand shareholders.

Telecom confirmed this week it was talking to a number of parties about doing "different things" with AAPT and has been approached about a possible sale.

Rival Optus has been tipped in the Australian press as the most likely bidder, but Vodafone was also seen as a possibility.

What looks certain is that Telecom would be forced to accept a lot less than the $2.2 billion it bought the company for in 1999.

Australian analysts value AAPT at about A$800 million ($865 million), almost A$600 million less than its value on Telecom's balance sheet.

Tony Wilson, of UBS in Melbourne, believes a sale would likely result in a special dividend.

"They'd certainly pay some kind of special if they sold it and realised several hundred million dollars in cash," he said.

Wilson said such a payment was likely to favour Telecom's New Zealand shareholders. "There are lots of franking credits sitting within Telecom, so I think for New Zealand investors who can use those franking credits there would be some greater attraction relative to them not doing anything on AAPT."

He did not believe a write-down in Telecom's assets would weigh on the company's ability to meet its long-term dividend payout policy, as some analysts have said.

"They've got a policy payout for ordinary dividends based on the earnings they generate. I've never heard anything else."

Jeremy Simpson, of Forsyth Barr, said: "A write-down of the book value wouldn't affect dividend payment".

"If the business was sold, then given Telecom's policy of maintaining an efficient balance sheet, there's a high chance that some of that money or all of it could be distributed to shareholders depending on what the capex requirements were."

An unsourced report in the Australian newspaper yesterday said Optus had resuscitated discussions on a deal - first explored two years ago - to buy AAPT.

Telecom shares closed 8c lower at $5.99 last night after rallying 13c on the news on Wednesday.