Telstra Corporation Limited
Telstra Debt Issuance Program dated 9 September 2010, incorporating the Australian Note Deed Poll dated 12 October 2006.
Dated 22 June 2010 and subsequently 15 November 2010 and 23 May 2011.
Nature of the bonds
The Bonds are direct, unsubordinated and unsecured obligations of Telstra and rank equally among themselves and at least equally with all other unsecured and unsubordinated obligations of Telstra, except for liabilities mandatorily preferred by law.
7.75% per annum, payable semi-annually (in two Coupons of 3.875%) in arrears on 15 January and 15 July in each year, including the Maturity Date, unless varied from time to time in accordance with the provisions of the Change of Control clause.
Repayments at the Maturity Date
On the Maturity Date, Bondholders are scheduled to receive the Face Value and the final Coupon Payment for the last Coupon Period.
Key benefits include:
- issued by Telstra;
- interest paid semi-annually in arrears;
- interest paid as 100% cash;
- interest is not deferrable by Telstra nor are interest payments discretionary;
- rank equally with all other senior and unsecured creditors of Telstra.
The value of an investment in Telstra Bonds may fluctuate due to various factors, including investor perceptions, worldwide economic conditions, interest rates, debt market conditions and factors that may affect Telstra’s financial performance. The following risks may affect an investment in Telstra Bonds:
- Telstra’s financial performance and rating – a change in Telstra’s financial condition or rating may impact on the market value and the transferability of the Bonds;
- Default risk – if an event of default occurs under the Bonds, or Telstra fails to perform any obligation in relation to the Bonds, such event or failure may impact on the value of an investment in the Bonds, the transferability of the Bonds and the ability of a holder to recover amounts due under the Bonds;
- Unsecured investment – Telstra Bonds are unsecured and, in making an investment, an investor is relying on Telstra’s general ability to repay principal and pay interest at the time it is due and fulfil its other obligations in connection with the Bonds, without recourse to any particular asset or security;
- Insolvency risk – in the event that Telstra become insolvent, insolvency proceedings will be governed by, or another jurisdiction determined in accordance with, Australian law. The insolvency laws of Australia or that other jurisdiction, and the treatment and ranking of bondholders, other creditors and shareholders under those laws, may be different from the position if Telstra was subject to the insolvency laws of an investor’s home jurisdiction;
- Market and liquidity risks – Bonds may have no established trading market when issued, and one may never develop (and, if a market does develop, it may not be liquid). There is no obligation on the dealers to effect secondary sales of the Bonds and investors may not be able to sell their Bonds easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. Illiquidity may have a severely adverse effect on the market value of the Bonds;
- Interest rate risks – an investment in fixed rate Bonds involves the risk that subsequent changes in market interest rates may adversely affect the value of such fixed rate Bonds. Increases in relevant interest rates may adversely affect the market value of the Bonds. In addition, the market values of Bonds issued at a substantial discount or premium to their nominal amount may fluctuate more in relation to general changes in interest rates than to prices for conventional interest-bearing securities;
- Litigation risks – risks relating to litigation and regulatory actions;
- Currency risk – Telstra will pay principal and interest on the Bonds in the currency in which the Bonds are denominated which may present risks if an investor’s financial activities are denominated principally in another currency, as exchange rates may significantly change over the tenor of the Bonds;
- Clearing system risk – as the Bonds are held by Austraclear, investors will rely on their procedures for transfer and payment.
Telstra will only grant security over its assets in respect of moneys borrowed or raised which is in the form of or evidenced by any note, bond, debenture, or other similar debt instruments which is, or are capable of being, listed, quoted, ordinarily dealt in or traded on any recognised stock exchange, over the counter or other securities markets, if Telstra Bonds are secured on an equal basis.
The negative pledge does not apply in respect of debt other than key debt capital market instruments. For this reason, the negative pledge does not restrict Telstra from granting security in relation to bank debt. A further exception is any mortgage, charge, pledge, lien or other security interest that:
(a) arises by operation of law; or
(b) is provided for by one of the following transactions if the transaction does not secure payment or performance of an obligation:
(i) a transfer of an account or chattel paper;
(ii) a commercial assignment; or
(iii) a PPS Lease, where “account”, “chattel paper”, “commercial consignment” and “PPS lease” have the same meanings given to them in the Personal Property Securities Act 2009 of Australia.
Change of Control Provisions
Applicable, if a Change of Control occurs and Telstra’s credit rating falls below a certain level, or is withdrawn, then the Coupon Rate on the Telstra Bonds will be increased by 1.5%, until Telstra’s credit rating is above a certain rating again.
Issuer may redeem early in certain circumstances for tax reasons.
Events of Default
Events of Default include:
- Failure to Pay: Applicable with a 5 day cure period;
- Breach of Other Obligation: Applicable with a 30 day cure period;
- Cross Default: Applicable, Threshold Amount is A$50,000,000;
- Insolvency: Applicable;
- Administration: Applicable; and
- Obligations Unenforceable: Applicable.