Telstra’s (ASX:TLS) proposal to “monetise” around $5 billion worth of future income from recurring nbn payments has been handed a hurdle, with the company behind the National Broadband Network (NBN) refusing to back the plan.
Telstra announced its proposal on 17 August to "monetise" between $5-5.5 billion worth of future, locked-in income from recurring payments from nbn in a bid to free up the potential capital sooner rather than later.
The move came off the back of the telco’s capital allocation strategy review it commenced in November last year, which included a potential plan to monetise a portion of locked-in recurring NBN receipts.
As part of the $11 billion deal Telstra inked in 2014 to hand over the telco’s existing copper and Hybrid Fibre-Coaxial (HFC) networks to nbn, the company behind the rollout of the NBN, the telco was set to receive additional payments over time for long-term leases of associated infrastructure.
According to Telstra, nbn’s one off payments over the next four to five years of the NBN rollout are expected to generate post tax free cash flow of approximately $5 billion.
With its plan to "monetise" the recurring nbn receipts - a move which would likely involve selling off the intrinsic value of the future payments before they are made and buying it back at a later date - Telstra hoped to effectively bring forward the capital that the payments are expected to bring in.
However, the proposal was subject to agreement and a number of steps including approvals and consents from investors, the Commonwealth Government and nbn.
“While the proposal is well progressed and supported by equity and debt investors, Telstra has been advised this morning that technical consents from nbn will not be forthcoming,” the telco told shareholders on 30 August.
According to Telstra, nbn stated that: “Essentially we can’t see how nbn’s position can be protected/improved by Telstra’s securitisation plan especially given the unpredictability of our operating environment in the 2020s”.
Telstra continues to stress that the proposed transaction highlighted the significant value in the company’s core underlying telecommunications infrastructure, as represented by the potential nbn monetisation opportunity.
“The process has shown the value of these payments to Telstra shareholders,” Telstra said.