Telstra's Plan to Monetize NBN Payments Blocked

By Robb M. Stewart Features Dow Jones Newswires

MELBOURNE, Australia--Telstra Ltd.'s (TLS.AU) plan to collect on some of the revenue it is due to receive from Australia's nationwide broadband network has been rejected by the state company running the network.

Continue Reading Below

The telecommunications company had proposed capturing about 40% of the almost 1 billion Australian dollars (US$795.1 million) it is set to receive each year for selling the wires that form the backbone of the National Broadband Network, a transaction it estimate would bring in up to A$5.5 billion that could be used to repay debt and repurchase shares even as it cuts back on dividend payouts.

On Wednesday, Telstra said that although the plan had the support of equity and debt investors, it wouldn't receive consent from NBN Co., the government company established to build and sell wholesale access to the broadband network.

It said NBN informed it that it couldn't see how the network's position could be protected or improved by Telstra's securitization plan, particularly given the unpredictability of the network's operating environment in the 2020s. Telstra didn't release the details of its proposal.

News of NBN's decision weighed on Telstra's shares, which fell as much as 8.6% on a day they were expected to decline in any case as they traded without rights to the upcoming dividends going to buyers. The shares have been under heavy selling pressure this month, since the company said it was scaling back its dividend policy.

Telstra is set to continue receiving compensation payments from NBN through 2020 as the network is rolled out, plus longterm payments for the next about 30 years for selling its legacy infrastructure.

Continue Reading Below

Construction of the broadband network began about four years ago and now covers about 30% of the homes in the country. That is expected to hit 85% within the next 24 months.

The network, which offers access to telecom companies that resell retail access to consumers, represents a re-nationalization of a material part of Telstra's business. Last year, Telstra estimated the network could strip it of about A$3 billion a year in earnings before interest, tax, depreciation and amortization at a time when it also faces heightened competition across other parts of its business.

The plan to monetize NBN revenue was well progressed, and the process had shown the value of those payments to Telstra shareholders, the company said.

In the 12 months through June, Telstra's net profit dropped by 34% to A$3.87 billion, dented by the prior-year's sale of its stake in Autohome, China's biggest consumer automotive website. Revenue for the year was 2.7% lower at A$26.01 billion.

The company earlier this month said it would reduce dividend payments from fiscal 2018, paying out between 70% and 90% of underlying earnings as a dividend against the close to 100% it has handed shareholders in recent years.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

August 29, 2017 22:27 ET (02:27 GMT)