"It's simply a reaction by S&P to the company announcing it's considering splitting in two," she said.
S&P placed its A/A-1 ratings on Telecom on credit watch with negative implications. The rating action followed Telecom's announcement it had submitted a proposal to Crown Fibre Holdings to structurally separate its fixed-line access network from its remaining business, S&P analyst Paul Draffin said from Melbourne.
"Accordingly, this proposal now confirms the terms on which Telecom would agree to a structural separation. In our view, this announcement increases the likelihood and advances the time frame of a structural separation occurring."
Although details of the proposal were limited, Mr Draffin expected the structural separation of Telecom would achieve a key Government object of the ultrafast broadband network process.
If the proposal proceeded, which would involve a demerger of the access network into a new stand-alone company, it would result in a lowering of the long-term rating by one or two notches, he said.
Ms Kinnaird said S&P was being cautious because the split could change the position of debt holders, and the credit watch was likely to remain until there was certainty around some of those issues.
"Essentially, S&P is looking after debt holders' interests, and the potential split creates a number of uncertainties for debt holders, such as which of Telecom's assets and earnings streams will be securing the debt in the future?"
Ms Kinnaird did not believe Telecom would structure a split in such a way as to put its debt holders in an inferior position. The company had already stated it remained committed to retaining its A-grade rating.
The S&P announcement did not affect Forsyth Barr's accumulate recommendation or its $2.60 valuation.
Telecom shares last traded at $2.02.
