Controversy engulfing the Australian government’s A$30bn-plus plans to sell its remaining 51.8 per cent stake in Telstra, largest telecommunications company, widened on Wednesday as legislation enabling the sale was presented to Australian parliament and an official investigation into possible violations of stock market rules by Telstra executives began.
In a related development, John Howard, Australian prime minister, rejected charges that his government should have publicised information it received in a confidential briefing by Telstra executives last month about the potential sharp deterioration of the company’s earnings.
Investors and corporate governance experts expressed sharply differing views on news that the Australian Securities and Investments Commission, the corporate regulator, was investigating Telstra for potential violation of stock market disclosure obligations following their surprise profit warning on Monday.
The claim by Sol Trujillo, Telstra’s recently appointed chief executive, that government regulation plans could wipe as much as 7 to 10 per cent off Telstra’s earnings in the current year to June, helped drive down Telstra’s share price on Tuesday by more than 5 per cent to a two-year low of $4.32, bringing the company’s value to about A$28bn from $31bn less than two weeks ago. on Wednesday in Sydney, the shares edged up to $4.34.
The ASIC probe, which on Wednesday requested Telstra executives to hand over confidential emails, was partly triggered by Monday’s earnings warning, which prompted investment banks to downgrade their Telstra earnings forecasts for the current year. But it also emerged on Tuesday that the opposition Labor Party had written to ASIC questioning Telstra’s presentation of a confidential briefing document to Mr Howard and senior ministers on August 11.
The document outlined financial and technical problems that the company had not discussed publicly, including claims it needed billions of dollars to fix its faulty fixed-line network and could not afford to keep borrowing from its reserves to pay the big dividends shareholders had been led to expect. Telstra had to use $550m from its reserve to pay dividends due later this month and set aside $2.2bn for next year, the document said.
Mr Howard moved to calm the escalating conflict between his government and Telstra, following his furious rebuke on Tuesday that the company’s top management team had behaved “disgracefully”. He told a radio station that his government had no part in the decision by ASIC to launch the Testra probe.
The company’s “problem is not government regulation, it’s government ownership,’’ he said. Reiterating his intention to sell off the government’s Telstra stake, Mr Howard acknowledged his government’s conflict of interest as Telstra’s principle shareholder, potential provider of funds and regulator.
But Mr Howard appeared defensive amid angry reaction from institutional investors and commentators to his remarks to parliament on Tuesday, that it was “the obligation of senior executives of Telstra to talk up the company’s interests, not talk them down.”
In a view that has been echoed by other big investors, Peter Morgan of 452 Capital, a leading Australian investment fund manager, said in an online comment on Wednesday that Telstra’s executives were behaving correctly and that Mr Howard’s comments were “very disappointing”. “Quite frankly, such comments are what you would expect from one of the corporate rogues of the 1980s, not the leader of Australia. Without a doubt, it is not the job of a management team to talk up a share price: it is their job to provide honest information to all investors.”
However corporate governance representatives including the Australian Shareholders’ Association said Telstra’s first duty was to present sensitive information to all shareholders, and that the management was as much to blame as the government for the company’s disclosure failures.
* Mr Howard, anxious to defend his earlier remarks, told a radio station: “Nobody is asking a company director or a senior executive of a company to tell lies in the interests of talking up the value of the shares.. I am not asking for that at all.”
“But I am asking and making a general statement.. That if you have a senior position with the company you have a general obligation not to talk against [its] interest.”
Telstra has denied breaching disclosure laws, saying it had fully complied with the parliamentary act that governs the company and stipulates that Telstra need only disclose price-sensitive information to the government. on Wednesday night, however, the company publicly issued the August briefing paper it prepared for the government.
Two key bills governing and approving the Telstra sale are scheduled for presentation to parliament’s upper house on Thursday, following the presentation of three other related bills to the lower house on Wednesday.