Investors eye cash on Telstra windfall

Telstra is to come under pressure to return funds to shareholders after its sale of China’s Autohome.

Telstra is expected to come under pressure from investors to return funds to shareholders, with the telco sitting on a $2.1 billion ­windfall from its sale in Nasdaq-listed Chinese car sale website Autohome.

The sale, which took place on Friday, has further bolstered ­Telstra’s balance sheet with ­additional funds available following a decision to pull out of a $1bn mobile joint venture in The ­Philippines last month.

Telstra chief executive Andrew Penn said the telco was committed to its capital management strategy. “We will take a ­balanced approach in considering the use of these funds, which ­includes capital management ­options,” Mr Penn said.

Meanwhile, Telstra’s stock was today outperforming the broader, lower, Australian market.

Its shares were up 9.0 cents, or 1.72 per cent, at $5.33, at 12.27pm (AEST).

With Telstra set to book an ­accounting gain of about $1.8bn once the sale of its 47.7 per cent is completed, the focus will shift on what the incumbent telco is likely to do with the windfall.

Meanwhile Deutsche Bank analyst Craig Wong-Pan said the sale value - of $US29.55 a share - was a 13 per cent premium on the volume weighted average price and a 74 per cent premium on the IPO price in December 2013, although it was a two per cent discount on the stock’s last closing price.

He said the money flowing from the sale had implications for Telstra’s capital management strategy, with surplus cash flow after dividends and interest payments over the coming five years already expected to come in at $3.6 billion ($0.29/share).

“Given the company has a low franking credit balance, we expect any capital return would be in the form of a buyback,” he said. However, he said, Telstra was expected to retain most of that in order to retain flexibility for making investments in Asia and for supporting the Australian business.

The sale of a stake to Chinese insurer Ping An will see Telstra retain one seat on Autohome’s board, down from five members.

Meanwhile, just hours after Telstra said it would sell the stake in Chinese online car retailer, a consortium including Autohome’s chief executive announced a bid for the whole company.

Autohome chief executive James Zhi Qin, Boyu Capital, Hillhouse Capital and Sequoia China are offering about $US3.56bn ($4.6bn) or $US31.50 a share for the company.

Telstra sold its stake in the ­online business to Ping An ­Insurance Group for $US29.55 a share.

It is understood Telstra held talks with a number of parties ­before picking Ping An Insurance Group as the buyer of the Autohome stake.

In February, Autohome said fourth-quarter adjusted net ­income rose 20 per cent, as ­revenue rose 46 per cent to 1.08 billion yuan ($220 million), equal to about $US167m at the time.

Revenue exceeded the company’s guidance as it posted strong increases in mobile traffic and dealer subscriptions.

Several Nasdaq-listed Chinese social networking companies have recently been subject to ­buyout offers led by executives.

Bankers say many of these companies intend to go public again in China.

Mr Penn said it was the right time for the telco to extract maximum value for its shareholders, as Autohome transitions from a pure online business to one with a substantial offline presence.

“Autohome has played an ­important role in building our presence in the Chinese technology sector and we look forward to working with Ping An and ­Autohome management as a minority investor,” Mr Penn said.

Telstra bought 55 per cent of Autohome’s parent company in 2008 for $76m as part of a broader investment in four internet ­businesses in China.

Mr Penn said despite the selldown, Telstra was firmly committed to its growth strategy in Asia.

“Autohome has been an ­excellent investment for Telstra and demonstrates the opportunities that exist in the Asia-Pacific region,” he said.

Expanding its Asian footprint is crucial for Telstra as it chases new avenues to drive growth in earnings, and there are signs any deal-making in the near term would probably focus on Telstra serving the needs of businesses in the ­region rather than ­consumers.

Mr Penn said there were “strong consolidation opportunities” in Telstra’s internet business, Pacnet, while the telco still had exposure to its Indonesian joint venture.

Additional reporting: Dow Jones Newswires and AAP