Telecom debt the 'biggest concern'

Shareholder activist criticises ballooning debt at AGM

Telecom needs to rein in its growing debt mountain, says New Zealand Shareholders Association chairman Bruce Sheppard.

The company's ballooning debt problems come as the company's net profit plunged 43 percent to $398 million for the June year, cash in the bank fell from $779m to $261m, and payables rose.

"It seems to me that you should be concerned about debt," Sheppard said at the company's tense annual meeting in Auckland.

Telecom has said it expects its executives to maintain a relatively stable capital structure where the ratio of net debt to ebitda does not go over 1.7 times. Chief financial officer Russ Houlden told the meeting the company was at 1.5 to 1.6 times, but expected this to fall over the next three years.

Long-term debt that has to be repaid in the next five years grew to $2.8 billion in 2009 from $1.8 billion the year before, according to the firm's accounts.

Meanwhile, Telecom's dividend policy is to be reviewed soon. The company distributed net earnings through quarterly dividends of 6 cents a share in the 2009 financial year.

Sheppard said Telecom was paying relatively low levels of tax in New Zealand, so had not received imputation credits for its dividends.

"You do have to wonder why a company committed to New Zealand, and that makes most of its profits from New Zealand is not paying tax in New Zealand."

Telecom would have to pay more tax eventually and would be better off declaring a gross dividend of 6 cents a share, pre-paying tax, and imputing its dividend, he said.

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