Telstra 5 YR – Relative Value Comments

At face value, the new Telstra 5yr at S/Q ASW + 105bps looks on the tight side versus the A- to A+ universe (chart 1). Furthermore, when you strip out financials’ exposure (chart 2), the new Telstra 5yr appears expensive to true corporates. Demand for the line will be strong as it’ll be the first true corporate deal for the year – thus, translating to some small short-term performance for investors.

In our view, we would be more inclined to target bank sub 5yr call at 6% plus versus the new Telstra 5yr. On a relative basis, the rating differential of A vs BBB is not large, and we expect bank sub T2s to be called when due.

Nonetheless, this issue will be a good gauge of the strength of the credit market.

Telstra is a solid issuer and there are no downgrade concerns for its A-/A2 rating. Following on from its positive 1H23 results Telstra is committed to maintaining a balance sheet consistent with an A band credit rating. The company will maximise their fully-franked dividend and ongoing business-as-usual capex of ~A$3bn pa, excluding Spectrum. Even in the event of distress, the company has A$1bn of cash and A$2.2bn of unused committed facilities (not bad – if you did want some reserves to call upon).

Chart 1 - Vs A- to A+ Universe

Source: Bloomberg

Chart 2 - Vs A- to A+ Corporates

Source: Bloomberg

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