Telstra plans to double A$ funding ratio

SYDNEY, AUSTRALIA: Australia's dominant phone provider Telstra Corp plans to double the share of Australian dollar debt in its total borrowing, two analysts who attended the firm's debt investor update said on Wednesday.

"Telstra expressed a strong desire to increase the Australian dollar proportion of its long-term debt funding from a current 20 percent up to 40 percent," National Australia Bank (NAB) said in a note to clients the morning after Tuesday's briefing.

The move would aim at broadening its investor base, while reducing its exposure to foreign currencies, the note said.

Telstra is an active borrower with debt programmes in Europe, the United States, Japan and Australia.

The telco firm has A$2.5 billion ($2.3 billion) of funding requirements due in its 2011 fiscal year and plans to establish a yield curve consisting of A$500 million bond lines in three, five, seven and 10-years, NAB said.

Telstra also reiterated its commitment to the company's A rating by S&P and A2 by Moody's. Both ratings agencies have a negative outlook on Telstra's rating due to increased competition concerns that are eroding its margins.

Analysts see the upcoming government's National Broadband Network (NBN) project as a risk for Telstra. The network will be a neutral fibre-optic platform, strengthening competition and ending Telstra's quasi monopoly on fixed-line communications.

"The development of the NBN would have the potential to negatively affect Telstra's credit profile in the medium to long term, most likely to A-minus," wrote Gus Medeiros, credit strategist at Deutsche Bank.

Telstra's five-year credit default swap widened by one basis point to 66/71 basis points on Wednesday, a level viewed as fair by Deutsche's Medeiros.