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Australia’s biggest telecoms operator Telstra agrees on a deal with a consortium of firms for the sale of its Chinese business SouFun::

In a bid to prevent further losses, Australia’s biggest telecoms operator, Telstra, Friday reported that it is mulling a possible sale of its Chinese business unit, SouFun, if its planned initial public offering fails. The Australian telecoms giant recently announced its results, posting slumping profits and record low share price.

To cushion itself from losses, Telstra said it had agreed with a consortium of companies on a back up deal that will see it sell SouFun for about $190 million profit. SouFun, an online property site, is Telstra’s main business in China. Telstra’s latest move comes amidst slumping share prices, peaking at $2.82 as at Friday, and the lowest of all time. Telstra’s shares have declined by about 13%.

On Thursday, Telstra issued a profit warning, representing the fourth downgrade the firm has made as it fights for room in the Australian telecoms market with other major rivals. According to analysts, Telstra’s embattlement arises from its inability to muster enough savings for financing investments for growth.

With its transition to the national broadband network, the company is expected to undertake a number of cuts in its fixed line cost base and increasing costs is not a good thing, said analysts. In the back up agreement, a group of companies agreed to buy Telstra’s 51% stake in SouFun in the event the initial public offering is unsuccessful.

The consortium in the agreement deal includes the founding Chinese shareholders of Next Decade and Media Partners, Apax Partners and General Atlantic. The deal effectively cushions Telstra with an exit plan should the volatile equity markets hinder a favourable initial public offering.

The deal values the Chinese business at about $810 million, whereas it places the value of Telstra’s shares at $413 million. However, the valuations are a far cry from last year’s valuations by Macquarie that placed Telstra’s stake at about $1 billion.

The initial public offering for SouFun has been in the pipeline for some time now but has always been pushed forward. But with the declining revenues, profits and market share, Telstra is keen on making about $190 million profit on its stake in SouFun should the initial public offering flop. Thus, in essence, Telstra stands to gain $413 million from the sale of SouFun after acquiring the stake in 2006 for $254 million.

13 Aug 2010.