NBN knocks back Telstra receipt monetisation plan

NBN has said it cannot see how its position would be improved by consenting to Telstra's securitisation plan.
Written by Corinne Reichert, Contributor

Telstra's attempt to monetise certain National Broadband Network (NBN) receipts has been knocked back by NBN, the company has revealed.

"Telstra announced a proposal to the market on 17 August to monetise a portion of its locked-in recurring NBN receipts," Australia's incumbent telco provider said in a statement to the Australian Securities Exchange (ASX) on Wednesday morning.

"This proposal was subject to the agreement and a number of steps including approvals and consents from investors, the Commonwealth government, and NBN Co. 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."

According to Telstra, NBN had said: "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 had earlier this month said the NBN would impact its earnings before interest, tax, depreciation, and amortisation (EBITDA) by around AU$3 billion due to NBN's connectivity virtual circuit (CVC) pricing.

"Given the latest outlook of NBN CVC charges, which we estimate will more than double over the coming years, we now expect the impact is likely to be at least at the top end of this range, around AU$3 billion," CEO Andy Penn said during the company's FY17 financial results call.

As a result, Telstra had said it was aiming to "monetise certain NBN receipts" in an effort to support a capital management program.

"If we were to proceed with these plans, it would involve approximately 40 percent of the total receipts that are expected, representing the already locked-in receipts for fibre and exchanges," Penn explained at the time.

"The scale of the proposed transaction is approximately AU$5-5.5 billion, with Telstra to retain some equity interest. Our intention would be to use the proceeds to reduce debt by around AU$1 billion, with the balance to support a capital management program to enhance shareholder returns, most likely through a series of on and off market buy-backs."

Telstra is currently the leading NBN services provider, with a market share across all network technologies excluding satellite of 52 percent, or 1,176,000 connections, after adding 676,000 customers during FY17.

Other NBN effects on Telstra's financial results meant Telstra Wholesale's income grew by 7.2 percent to AU$2.8 billion due to an increase in NBN ISA ownership receipts as the rollout gains pace; and Telstra Operations income growing by AU$1.2 billion due to an increase in NBN commercial works.

For the full year to June 30, Telstra announced a net profit of AU$3.9 billion, down 32.7 percent from AU$5.8 billion due to the AU$1.8 billion from the sale of Autohome shares included in the FY16 net profit. Excluding this, net profit was up by just 1.1 percent year on year.

EBITDA was AU$10.7 billion, up 2 percent from AU$10.5 billion, while revenue was AU$26 billion, down 2.7 percent from AU$26.7 billion a year earlier.

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