The Australian government on Friday gave the go-ahead for the full privatisation of Telstra - including an A$8bn ($6bn) public offering - but only after extracting a public guarantee from the company’s management not to undermine the sale process.

John Howard, the Australian prime minister, “was prepared to scrap this sale if the company did not promise to behave,” said one person with knowledge of the situation. “You can’t attempt to sell shares in a company while management are trashing its prospects.”

The announcement about the future of the government’s remaining 51.8 per cent stake sets in motion what would be Australia’s largest share offering since 1999 and the world’s biggest telecommunications offering since France Telecom in 2003.

The government confirmed that the stock sale – representing a third of its holding - will involve a retail as well as institutional offering, although the proceeds will be far lower than the A$30bn speculated last year.

The government decided against offering the entire stake because Telstra’s share price of A$3.50 is at a nine-year low. Instead, it will transfer about 30 per cent of the company’s stock to a state pension fund, which cannot sell for at least two years.

The government and company, which was privatised in 1997, have been at loggerheads over the regulatory regime and Mr Howard delayed his decision because of fears that Telstra would use the sales process as a vehicle to campaign for less stringent regulations.

However, Donald McGauchie, Telstra chairman, said that although Telstra would continue to explain the impact of the regulatory regime on the company any comments would be “proportionate, measured and factual”. It would also help to “ensure the success of the sale”.

Telstra also effectively promised to gag Phil Burgess, a key executive, who this week angered Canberra by insisting that the company would continue to publicly battle against the industry regulator.

Mr Howard has long pushed for a full divestment, and eventually won parliamentary backing last year for the sale, which follows the sale of two previous tranches in 1997 and 1999.

Paul Williams, political scientist at Griffith University in Brisbane, said: “This sale is now going ahead, but only partially. So it’s embarrassing for Howard and a setback, but ultimately, it will probably only prove a political hiccup.”

The share sale is scheduled to go ahead in October and November and is being co-ordinated at a global level by Goldman Sachs JB Were, UBS and ABN Amro Rothschild.

Nick Minchin, finance minister, said on Friday that selling A$8bn worth of stock would be “no mean feat” given the chunky size of the offering. Telstra is mid-way through a painful restructuring, is experiencing declining revenues and recently abandoned a flagship broadband project.

However, retail and institutional investors will benefit by paying for stock in two instalments over 18 months. Analysts expect the dividend yield to top 13 per cent until the shares are fully paid, making the shares a potentially attractive buy.

Two weeks ago, Telstra reported that net profit fell to A$3.2bn from A$4.3bn in the year to June 30, the lowest level since 1997.

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