Telecom NZ kept on S&P's credit watch

Standard & Poor's has maintained its credit rating for Telecom NZ (ASX:TEL), but warned a Chorus demerger will likely knock it down a notch

Credit ratings agency Standard & Poor's has kept Telecom NZ (ASX:TEL) on its CreditWatch list for a possible downgrade, due to the implications of the Chorus demerger.

The agency on Tuesday maintained Telecom NZ's long-term and short-term ratings at A and A-1, respectively.

But it added that a Chorus demerger would "likely result, all things being equal, in a lowering of the long-term rating ... by at least one notch".

Telecom NZ gained its existing ratings due to its position as New Zealand's incumbent telecom service provider, S&P's said.

But structural separation, as well as the threat of increased regulatory restraints and competition, would challenge this position.

But the agency added that a rating outcome of A- would be possible for the group if it maintains a conservative capital structure and financial policies post-demerger.

Its strategy regarding its remaining business in Australia as well as its ICT operations could also influence its long-term rating.

Telecom NZ agreed to split off its Chorus network division as part of its participation in the government's Ultrafast Broadband fibre project.

Last week, Telecom NZ booked a 56.8 per cent decrease in reported FY11 profit, due to costs including a writedown on the value of its soon to be largely obsolete copper network.

TEL shares fell 0.93 per cent in Tuesday's trading to $2.140.

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Tags businessTelecom NZtelcosStandard & PoorChorus demergerChorusCreditWatch

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