Telstra says NBN Co won’t consent to network revenue plan

Telstra shares slump as bid to monetise up to $5.5bn worth of income from NBN payments is shot down by NBN Co.

Rolling out the national broadband network.

Telstra’s bid to monetise up to $5.5 billion worth of future income from national broadband network payments has been shot down by NBN Co.

According to the telco, NBN Co has refused to provide consent for the proposed financial transaction.

The move is a fresh blow to Telstra’s plans to minimise the impact of the NBN on its balance sheet, with the monetisation strategy designed to free up capital sooner rather than later for the telco.

Analysts labelled the development “highly negative” for Telstra.

Telstra said in a statement: “While the proposal is well progressed and supported by equity and debt investors, Telstra has been advised this morning that technical consents from NBN Co will not be forthcoming.”

Telstra’s statement quoted NBN Co as saying: “Essentially we can’t see how NBN’s position can be protected/improved by Telstra’s securitisation plan especially given the unpredictability of our operating environment in the 2020s.”

Telstra (TLS) shares plunged up to 8.6 per cent after the announcement to their lowest level in five years, although the telco’s shares also went ex-dividend today, signalling the last shareholder payment before a move to a lower dividend scheme.

CLSA analyst Roger Samuel said Telstra management had indicated a straightforward approval process for the plan.

“This is highly negative for (Telstra) given the lack of funds available to be used for debt repayments and a share buyback, which we estimate would have been 3 per cent EPS accretive.”

Citi analysts said the rejection means that the proposed share buybacks that Telstra has intended to fund with this transaction are unlikely to proceed.

Telstra announced the proposal to the market on August 17 as one of the outcomes a capital allocation review that began in November.

The ongoing impact of the NBN on Telstra’s business has also seen the telco flag cuts to the dividends paid out to about a million investors.

Telstra boss Andrew Penn said at the time the process would reduce debt by about $1bn, with the balance to support a capital management program to enhance shareholder returns, most likely through a series of on- and off-market buybacks.

The recurring payment from NBN Co to access Telstra’s pits and ducts infrastructure is expected to grow to just under $1 billion annually by the time the migration to the NBN is completed.

Under the agreement between Telstra and the federal government, struck in 2011, the telco is set to receive $11bn in compensation for the use of its copper network.

The lease payments from NBN Co are set to run until 2045 and Telstra has been working on a plan to bring forward some of that revenue for some time.

Telstra was hoping to securitise about 40 per cent of the money it will receive from NBN Co for the access.

“The scale of the proposed transaction is approximately $5bn to $5.5bn, with Telstra to retain some equity interest,” Mr Penn said on August 17.

In the 12 months through June, Telstra’s net profit dropped by 34 per cent to $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 per cent lower at $26.01 billion.

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