Aussie Vote: Spotlight Not Good For Telstra Investors
July 26, 2001
Dow Jones Newswires
By IAIN MCDONALD and GRAHAM MORGAN
A Dow Jones Newswires Column
CANBERRA -- Australia's Telstra Corp. (TLS) is again a political football, a move that is bad news for the company's shareholders already aghast at a stock price below A$5.
Labor leader Kim Beazley has signed a giant-sized pledge to keep most of Telstra's stock in government hands if his center-left party wins the election a few months from now.
And the coalition government isn't rushing to refresh its policy to sell the nation's biggest telecommunications company, instead focusing on winning rural and regional voters dissatisfied with telecom services.
As a result, this posturing by both sides means privatization of Canberra's remaining 50.1% share in Telstra is a long way off, leaving the company in limbo and exacerbating fears of possible government interference in the company.
Telstra itself wants full privatization but knows it is powerless to make this a reality.
"Full privatization of Telstra remains in the best interests of our customers and our shareholders...but at the end of the day the decision of our government on Telstra is one for Parliament to make," Telstra chief executive Ziggy Switkowski told reporters Thursday.
He wouldn't comment on how a change in government will affect the company.
Analysts say there are few positives about the government's control of Telstra and plenty of upside for the company without it.
Scott Marshall, an analyst at Shaw Stockbroking, says full privatization will reduce the company's risk profile, lower debt funding costs and increase Telstra's price-earnings ratio.
It will also allow the company to raise funds through asset sales, including those with joint venture partner Pacific Century CyberWorks Ltd. (PCW), he says.
"Telstra can't raise equity funds unless it spins off major assets and then uses those assets to raise funds," says Marshall. "Also, if the company was owned by minority shareholders, this would allow Telstra to consider takeover bids or alliances."
Full Sale A Long Way Off
But with Labor odds-on favorite to win the next election, privatization is unlikely.
"The further sale of Telstra will depend on which (party) is in power," Marshall says. "You can kiss it goodbye," if Beazley wins.
Telstra's share price is already under intense pressure, having fallen 30% since a recent peak of A$7.22 at the end of January mostly on forecast lower earnings and slow revenue growth. Midday Thursday, Telstra shares were quoted at A$4.99.
The conservative coalition led by Prime Minister John Howard sold 49.9% of Telstra in two stages but has held back from selling its remaining stake because of a hostile Senate and criticism from within.
The government needs support in the upper house Senate from Labor or the left-wing Australian Democrats minor party to pass laws. Both parties are strongly opposed to the privatization.
Even if the coalition returns for a third term at the next election, it isn't likely to have a majority in the Senate so the stalemate will continue.
Also, junior coalition partner the National Party doesn't want to sell Telstra until telecom services in rural areas improve.
The government in its May budget confirmed it has delayed for at least another two years the projected sale of Telstra to the fiscal year ending June 30, 2004.
Labor Favored To Win, Telstra Key To Campaign
Key to Labor's election campaign is its so-called Knowledge Nation agenda, which promotes increased spending on education, research and development.
And Labor sees Telstra as a key part of its plan.
In a ceremony to be repeated in all 150 federal electorates around the country, Beazley and Labor's candidate in the rural seat of McEwen last week signed the pledge, which looks more like checks presented to lottery winners.
"Labor believes that by keeping Telstra in majority public hands, services for all Australians will be maintained and improved," Beazley said. "Commonsense tells you that a fully privatized Telstra will focus on profits, not people, and that services will suffer."
And that is what shareholders will become increasingly nervous about - Labor directing Telstra to provide services that aren't necessarily profitable.
"You have to question the ability of government people to operate in the corporate world in order to raise debt and to ally with other corporates," said an analyst at a major bank.
Expectations of government interference led Beazley Monday to declare a Labor government would use only sparingly ministerial power to direct Telstra, instead relying on Telstra's board to set priorities.
"It (ministerial direction) is a reserve power, not an active power," he told reporters. "It is a last resort, but we're not anticipating using it."
Even contemplating use of the power is enough to worry investors.
-By Iain McDonald, Dow Jones Newswires; 61-2-6208-0901, iain.mcdonald@dowjones.com and Graham Morgan, Dow Jones Newswires; 61-2-8235-2962; graham.morgan@dowjones.com
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