NBN buy ‘not necessarily end game’ as Telstra forms new holding company

Telstra chief executive Andrew Penn has dampened speculation about any future plans to buy the national broadband network (NBN), arguing a further restructure of the telco would be needed for any deal to take place.

The telecommunications giant announced plans to establish a new holding company and spin-off its international division into a new subsidiary on Monday, in a restructure designed to help Telstra squeeze more value out of its assets.

“We get lots of newspaper articles about how we are planning to buy the NBN and that’s not necessarily the end game here. It’s always been a case of creating optionality, transparency around the assets and managing them optimally,” Mr Penn said.

“The new structure has been chosen as it delivers a modern, optimal long-term portfolio structure for the Telstra group of businesses.“: Telstra chief executive Andy Penn.Credit: Eamon Gallagher

“We would be doing this [the restructure] in any event regardless of whether that [buying the NBN] does or doesn’t occur, but were we to contemplate business combination with the NBN at a future point in time it would require more substantive de-linking of InfraCo Fixed from the rest of the group because we would need to be not vertically integrated.”

“That may require further shareholder approval at a later point in time.”

Under the plans announced on Monday, Telstra shareholders will have their holdings transferred to the new entity under a scheme of arrangement that will be voted on at the company’s annual general meeting in October.

Telstra said there will be no changes to ownership levels as part of the restructure, which will split the company into four divisions - InfraCo Fixed, InfraCo Towers, ServeCo and Telstra International. Mr Penn added the restructure will not effect any executive positions and will not lead to any job losses beyond what has been previously outlined under its T22 program.

The restructure, first announced last November, is the biggest corporate makeover for the telco since its privatisation in 1997 and has heightened speculation about its role in a potential future sale of NBN Co. It has been broadly supported by investors and analysts, with Morningstar analyst Brian Han saying the measures help clear the deck for Telstra if and when it decides to make a move on the NBN.

“I think it makes sense for Telstra to have a structure to at least have a look at that option [acquisition of the NBN Co] or to have a ready-made vehicle that may be used by another party to do so,” Morningstar analyst Brian Han said.

InfraCo Fixed (currently TelstraCorp) will include physical infrastructure, InfraCo Towers will be the division for the mobile tower assets and ServeCo will house products and services. A fourth division, Telstra International, will include subsea cables and the company’s other international entities.

Mr Han added that it made sense for Telstra to establish the international arm, which was announced for the first time on Monday.

“If the rationale of all this restructure is to open up monetisation and strategic options, why not also split out the international businesses while it’s at it and entice a whole different type of potential buyers/investors (not just those obsessed with infrastructure),” he said.

“It’s not as if international businesses are fundamentally core to Telstra.”

Mr Penn said the telco would work to ensure the interests of customers, suppliers and debt providers were considered in the restructure as he flagged the sale of all or part of the InfraCo Towers business by the end of financial year 2022. External debt will sit with InfraCo Fixed while all future debt will be issued out of the newly formed Telstra HoldCo.

Chairman John Mullen said the restructure was a step towards realising the value of the telco’s infrastructure.

“It also reflects the new post-COVID world we are living in and the fact that our assets are a critical part of the infrastructure that is enabling the nation’s rapidly growing digital economy,” Mr Mullen said.

Ian Chitterer, vice president at Moody’s Investors Service said the restructure should be credit neutral for Telstra.

“Telstra’s proposed legal corporate restructure should be credit neutral as it will result in the existing external debt remaining at Telstra Corporation Limited, which will become the new InfraCo Fixed, while all future debt will be issued out of the newly formed Telstra HoldCo, with Telstra considering a cross guarantee between the two entities,” Mr Chitterer said.

“Telstra will engage with its debtholders over the coming months, and we expect the cross guarantee will be put in place given the importance the company places on its debtholder relationships.”

Telstra shares ended the session on Monday 1.25 per cent stronger at $3.25.

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