What a difference a year has made for Telecom. This time last year, the Otago Daily Times reported the company's share price had plunged to a new low of $1.90 as uncertainty about the future structure of the once blue chip company set in.
The share sell off came mainly from mum and dad investors, who appeared to wait until the company went ex-dividend before bailing out.
Making matters worse for the company was a memo from rating agency Standard and Poor's. While affirming the A/A1 ratings, S&P revised the outlook on the long-term rating on Telecom to negative from stable.
The outlook revision followed Telecom's confirmation it was considering a structural separation from its copper access network from its remaining businesses in order to participate in the New Zealand Government's $1.5 billion ultrafast broadband (UFB) network.
Yesterday, the shares hit a recent high of $2.54 before closing at $2.50, but some bad news continued as investors started looking for more detail on the deal announced on Tuesday about the structural separation of Telecom and infrastructure arm Chorus.
Craigs Investment Partners broker Chris Timms said investors were starting to wonder about what to do with their Telecom shares: hold them for the separation or sell them at the recent high prices.
"The announcement provided certainty but they want to know how's the split going to work."
More than 26 million shares were traded yesterday as investors started looking for more detail, he said.
Moody's Investors Service lowered the outlook on Telecom's rating, after the announcement Chorus was chosen to have a cornerstone role in the Government's UFB project.
Moody's changed to negative from stable its outlook on Telecom's A3 senior unsecured long-term rating and the P-2 short-term rating, and noted: after structural separation, subject to shareholder approval and legislative change, Telecom would be a retail-orientated telecoms business comprising predominantly fixed, mobile and ICT businesses.
The change in outlook to negative reflected the earnings dilution and narrowing of business mix that would arise from the proposed separation of Chorus and therefore the loss of Telecom's legacy copper network, Moody's senior credit officer Ian Lewis said.
The negative outlook also reflected the uncertainty associated with Telecom's capital structure and financial policy after separation, and the possible lapse of considerable time before separation was effected.
Telecom intends to demerge Chorus through a scheme of arrangement by late 2011.
"While a structural separation would likely carry negative rating pressure, the assumption of a conservative financial profile through debt reduction will be a supportive rating consideration," Mr Lewis said.
Moody's would monitor developments associated with separation and assess their effect on Telecom's rating.
