(The following was released by the rating agency)
MELBOURNE (Standard & Poor's) Aug. 31, 2011--Standard & Poor's Ratings Services said today that it had assigned its 'BBB' preliminary long-term issuer credit rating to New Zealand-based telecommunications company Chorus Ltd. (Chorus). The outlook on the rating is stable. Chorus is the access network business of Telecom Corp. of New Zealand Ltd. (TCNZ; A/Watch Neg/A-1), which is planning to demerge the Chorus business and related infrastructure in late 2011, subject to shareholder and various other approvals. The ratings on TCNZ remain on CreditWatch with negative implications, where they were initially placed on Aug. 4, 2010; we expect to lower the long-term ratings on TCNZ by one notch to 'A-' and the short-term rating to 'A-2' if the demerger proceeds as planned.
'The preliminary 'BBB' rating on Chorus reflects our view of the company's strong market position as the dominant fixed-line telecommunications access network in New Zealand, the high capital barriers to competition, and Chorus' strong operating cash flow,' Standard & Poor's credit analyst Paul Draffin said. 'These strengths are tempered by the network volume risks associated with fixed to mobile network substitution, and the execution and cost risks associated with the rollout of the proposed Ultra Fast Broadband (UFB) fibre-to-the-home (FTTH) network.'
We consider Chorus to have a 'strong' business risk profile, underpinned by high barriers to entry created by the substantial capital costs of its fixed-line access network and the relatively small and low-density nature of the New Zealand population. That said, we expect the key competitive challenge to Chorus' network position in the next few years to come from fixed to mobile network substitution. The rating incorporates an expectation that mobile-only households will continue to grow and could reach up to 15% of the New Zealand population in the next five years, from about 5% currently. However, we consider that Chorus' access network remains well positioned to retain a large share of total New Zealand telecommunications users in the long term.
Mr. Draffin added: 'The stable outlook reflects our expectation that Chorus' strong network position, prudent capital structure, and balanced approach to capital management should offset risks at the 'BBB' rating associated with the group's large and complex FTTH capital-expenditure program and revenue risks associated with fixed to mobile substitution.'
Keywords: MARKETS RATINGS CHORUSLTD
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