Chorus, New Zealand's largest telecommunications network operator, has been assigned credit ratings reflecting its dominant position in the fixed-line telecommunications access network in New Zealand.
Standard & Poor's yesterday assigned Chorus a BBB long-term rating and stable outlook after the completion of its demerger from Telecom.
Moody's gave the company a Baa2 rating on $1.7 billion of debt. Its rating outlook is stable, reflecting the company's stable cash flows, appropriate funding structure and liquidity profile.
Chorus could be downgraded if there were significant overruns or delays on the ultra-fast broadband rollout.
"Softer revenues, capex blowouts or changes to dividend policy would put negative pressure on the rating," Nicola O'Brien, a Moody's analyst, said.
S&P analyst Paul Draffin said the BBB rating on Chorus reflected the company's strong market position.
"Tempering these strengths are the network volume risks associated with fixed to mobile network substution and the execution and cost risks associated with the rollout of the proposed ultrafast broadband fibre-to-the-home network."
The stable outlook reflected the expectation that the strong network position of Chorus, prudent capital structure and balanced approach to capital management should offset risks.
Chorus was demerged from Telecom so it could be chosen by the Crown to build a fibre network for about 830,000 premises, representing about 70% of the UFB initiative. In all, Chorus expects to deploy about 20,000km of fibre for the UFB and Rural Broadband Initiatives by 2020.
The new fibre network will complement Chorus' existing fibre and copper network that provides about 1.8 million connections. A range of service providers use the network to deliver fixed line phone, broadband and data services to homes and businesses.
The new Telecom's credit rating was affirmed by Moody's and the outlook raised to stable from negative following the completion of the Chorus demerger.
The phone company has an A3 senior unsecured long-term rating and P-2 short-term rating.
The improved outlook reflected the de-leveraging since the demerger, which saw more debt transferred to Chorus.
The ratings agency said the loss of Telecom's core asset would weaken its earnings and cash flows.
"We expect TCNZ's new financial profile to be commensurate with its changed operating profile that now reflects an overall weakened business model, though counter-balanced to an extent by a now significantly reduced regulatory impost which had been clouding TCNZ's credit profile," Ian Lewis, a Moody's vice-president and senior credit officer, said.
Further downward rating pressure would occur if Telecom embarked on acquisition of a 4G spectrum, which would place pressure on the company's financial profile.
