Telstra’s shareholders have cleared the way for its ‘Big Bang’ moment

That collection of assets generated about $1.7 billion of EBITDA last financial year and would be appealing to the same sorts of passive investors in infrastructure that acquired the interests in Amplitel.

Institutional investors would also value its income streams – about $2.4 billion last year – far more highly than that income is valued while within Telstra, which trades on an EBITDA multiple closer to eight times than the 28 times Amplitel’s equity was valued at.

While interest rates have risen relative to where they were when the Amplitel deal was struck last year – the Australian government 10-year bond yield was about 1.5 per cent then and is about 3.9 per cent today – and therefore the net present value of InfraCo’s cash flows would be lower than it would have been then, it would still be valued far more by institutions than by Telstra shareholders.

Telstra plans to maintain at least a bare majority (50.1 per cent) interest in all its existing businesses and can only sell down interest in them to investors from “Five Eyes” countries (for obvious national security reasons) but, on its own earnings multiple, the business would be worth about $15 billion.

At, say, 20 times EBITDA, it would be valued at closer to $34 billion and the sale of a 49.9 per cent interest could release almost $17 billion without Telstra relinquishing control.

Brady and her board have some complex questions to answer before they decide how to deal with InfraCo, if they decide to deal at all.

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One is whether they deal with the whole of InfraCo or separate out the payments from NBN Co.

In 2017 (when interest rates were also lower than they are today and the long bond rate was around 2.5 per cent) Telstra tried to securitise about 40 per cent of the value of that long-term passive income stream, hoping to raise more than $5 billion. That would have valued the entire payment stream at about $12.5 billion, although some analysts thought it was worth closer to $15 billion.

NBN Co, still in the midst of its rollout, vetoed the deal because it was concerned about introducing third parties to the relationship. With its rollout complete, it no longer opposes any securitisation, although it would have to be consulted.

With higher interest rates and fewer years remaining in the deal, the value of the payments to institutions might have changed, although their long-term nature – they could run beyond 2046 – and the peculiar nature of the current rate settings as central banks respond to the spikes in inflation rates means that the impact of the shorter duration and higher rates on value might be muted.

Andy Penn’s legacy to Telstra and its shareholders is a simpler, better and much less capital-intensive core business and a range of options for releasing latent value from the rest.

In any event, those passive income streams would be valued more highly by super funds and sovereign wealth funds than they are by telecom investors.

A complicating factor is that those payments and, indeed, the separation of InfraCo from Telstra’s customer-facing businesses, give Telstra a strong hand in any privatisation of NBN Co.

While the Albanese government has ruled out privatisation in this term (which wouldn’t have occurred anyway, given the complex approvals processes, including a Productivity Commission report, required before NBN Co can be dealt with) the original Labor vision for the NBN was that it would eventually be privatised.

The most value-accreting way to do that – for Telstra shareholders and taxpayers – would be to merge it with InfraCo.

That would create a much larger infrastructure-based business, internalise the payments stream and other relationships and, if a merger were effected via an acquisition of InfraCo by NBN Co for scrip, use Telstra’s vast retail shareholder base as the core of a listed entity in which Telstra itself would have no equity. It would achieve the long-sought-after structural separation of Telstra.

Whether she sells a minority interest in all of InfraCo, securitises some or all of the NBN CO payments, or preserves the most leverage for an eventual attempt to merge InfraCo with NBN Co, Brady has a range of valuable options within that business.

Telstra also has a big and strategic international business that includes the newly-acquired (at the Federal Government’s urging and with government financial assistance) Digicel businesses in the Pacific and a valuable network of cable assets and valuable data centres.

It could sell down its interest in those assets, or use equity in them to expand or to bring in shareholders or strategic partners acceptable to the government. There’s monetisable value in a collection of assets that don’t get a lot of attention within this market.

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Penn’s legacy to Telstra and its shareholders is a simpler, better and much less capital-intensive core business and a range of options for releasing latent value from the rest.

The responsibility for capitalising on those options and maximising the value-accretion as Telstra experiences the biggest transformation of its own volition (i.e. excluding the creation and value-destructive impact of the NBN) since its privatisation now lies with Brady and her board.