articles Ratings /ratings/en/research/articles/211026-bulletin-telstra-trims-debt-headroom-with-digicel-pacific-purchase-12162359 content esgSubNav
In This List
NEWS

Bulletin: Telstra Trims Debt Headroom With Digicel Pacific Purchase

RESUPD

Research Update: Australian Postal Corp. Outlook Revised To Stable On Strong Parcel Earnings; 'A+/A-1' Ratings Affirmed

COMMENTS

One-Third Of German Companies Are Behind On New 2045 Net-Zero Deadline

RESUPD

Research Update: Goodman Australia Partnership 'BBB' Ratings Affirmed; Outlook Stable

COMMENTS

COVID-19 Impact: Key Takeaways From Our Articles


Bulletin: Telstra Trims Debt Headroom With Digicel Pacific Purchase

SINGAPORE (S&P Global Ratings) Oct. 26, 2021--S&P Global Ratings today said that Telstra Corp. Ltd.'s acquisition of Digicel Pacific will marginally erode its leverage headroom at the current rating level (A-/Stable/A-2). Our assessment of Telstra's business risk remains largely unchanged.

The purchase of the South Pacific-based mobile operator will be partially debt-funded, weighing on Telstra's leverage. The US$1.6 billion acquisition (plus earn-outs) will be funded by US$270 million of equity from Telstra and US$1.33 billion from the Australian government's Export Finance Australia agency (via a US$720 million nonrecourse 10-year loan and US$610 million of equity-like capital).

Telstra's financial commitment to the Digicel Pacific transaction is relatively modest and is done on favorable terms, in our view. Nonetheless, the acquisition follows Telstra's recent 49% sell-down of its mobile tower portfolio--a transaction that we consider is akin to a sale and lease-back transaction--and a proposed A$1.35 billion in share buybacks over the next year. Accordingly, we expect the impact of these transactions to cause Telstra's adjusted debt to EBITDA to approach, but not exceed, our 2.5x downgrade trigger in fiscal 2022 (year ending June 30, 2022).

In our opinion, the acquisition is unlikely to materially increase country and regulatory risks for Telstra. About 80% of Digicel Pacific's EBITDA is from Papua New Guinea, which we view as a materially higher-risk market than Telstra's home market of Australia. Nonetheless, Telstra's earnings exposure will be limited; we estimate Digicel Pacific's EBITDA will represent less than 5% of the broader Telstra group. Similarly, we do not consider that the acquisition provides meaningful geographical diversification for Telstra. We also understand Telstra has obtained political-risk insurance to mitigate fallout from political and regulatory-intervention risk over the next six years, if any such events occur.

On Oct. 25, 2021, Telstra announced the purchase of the Digicel business in the South Pacific region, in partnership with the Australian government. The transaction is subject to government and regulatory approvals, and is expected to complete in the first quarter of calendar 2022. The investment will be held by Telstra International under Telstra's new corporate structure.

This report does not constitute a rating action.

Primary Credit Analyst:Yijing Ng, Singapore (65) 6216-1170;
yijing.ng@spglobal.com
Secondary Contact:Richard P Creed, Melbourne + 61 3 9631 2045;
richard.creed@spglobal.com

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.


Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back