Telstra offloads Chinese net firm for $200m Michael Sainsbury and Mitchell Bingemann From: The Australian August 14, 2010 12:00AM
TELSTRA will offload its key Chinese online real estate business, making a $US190 million ($211m) profit, as investors hammer its shares.
Shares in Australia's largest telco touched an all-time low yesterday, as investors dumped the stock amid fears the telco would struggle to arrest market share declines and keep paying out its current generous dividends.
Telstra stock, which the government sold to investors for $3.70 in 2006, crashed to a record low of $2.82 yesterday before recovering in late trade to close at $2.91, down 2c.
News that Telstra would quit its 51 per cent holding in Beijing-based SouFun Holdings did little to arrest the share price declines. Telstra should receive $US413m from the sale, after tipping in an initial investment of $US254m four years ago.
Telstra will sell its entire SouFun holding into a planned initial public offering before the end of the year. But private equity firms Apax Partners and General Atlantic, along with two other existing SouFun shareholders, thought to be founder and chief executive Vincent Mo and his long-time business partner Shan Li, have agreed to buy whatever shares are not sold through that process, at the IPO price or up to an "agreed maximum".
The plunge in global equities markets thwarted Telstra's original plan to float SouFun before June 30 and continuing uncertainty is likely to see the float priced at the lower end of the $US800m to $US1 billion market estimates.
Still, the full sale also casts doubt over Telstra's longer-term commitment to the Chinese market. SouFun made up about 50 per cent of its China revenues and the strategy of cross-selling between its group businesses in China, a project that was being developed under the leadership of Telstra China chief Robert Rath, who recently returned to Australia but has yet to be replaced. "We are obviously still very committed to China and are pleased to get a 75 per cent return on our investment,"' a Telstra spokeswoman said.
She said the 75 per cent -- or $US190m -- return was calculated using the original stake, money spent and profits earned.
On Thursday, Telstra shares suffered their second-biggest fall since listing on the stockmarket in 1997, as the former monopoly admitted it was haemorrhaging fixed-line customers quicker than it could sign up new ones.
The dire results -- which saw profit for the year drop 4.7 per cent to $3.88bn and revenue decline for the first time in almost a decade -- have forced Telstra to undertake another lengthy and expensive transformation program and to cut next year's earnings guidance by a high single-digit percentage, as it tries to claw back market share.
Analysts reacted to Telstra's poor results and earnings warning with a flurry of downgrades on the telco's target share price. Citigroup analyst Chris Vagg maintained his buy recommendation, but sliced 55c from his target price to $3.60.
But Nomura analyst Sachin Gupta was not convinced that Telstra's plans to invest up to $1bn next year to capture market share would bear fruit for the telco, and has warned that dividends could now be at risk.
"For the next three years, we expect revenues, margins, profit and cashflows to decline every year. A dividend of 28c is not at risk now, but the outlook is uncertain, in our view. The NBN decision isn't final either and a change in government could see discussions start all over again," Mr Gupta said.
Nomura downgraded its recommendation for Telstra stock to a sell and slashed 75c from the telco's target price to $2.75.
One analyst said the telco's best chance to repair its damaged stock would be to hope the Labor government retained power at next Saturday's election.
"After Thursday's results, I think the better outcome is now from the ALP winning, not the Libs, as the deal with NBN Co will bring lots of cash, which will be necessary to pay dividends and to execute this new strategy of investment," the analyst said.
"If the Libs get in, yes, structural separation is off the agenda, but the status quo business is now a much lower-margin business."
Analysts now price the value of Telstra's stock in a wide range between $2.75 and $4. And the damage has flowed on to other telcos.
