Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Chorus at No Risk of Financial Distress

6 November 2013

Chorus at No Risk of Financial Distress

Copper lines monopolist Chorus may have misled Prime Minister John Key, the public and the financial markets when it said yesterday it was at risk of defaulting on its debt, the Coalition for Fair Internet Pricing said today.

The coalition was releasing an independent analysis of Chorus’s accounts by Professor Jerry Bowman, a former chair in finance and now emeritus professor of finance at the University of Auckland.

The coalition commissioned the analysis to inform its recent submission to Communications and IT Minister Amy Adams’ purported review of the Telecommunications Act.

Professor Bowman was asked to assume a cut in the price of copper broadband and voice services, from the current $44.98 to $32.45 per line per month. This is a bigger price cut than the Commerce Commission finally determined yesterday.

Professor Bowman concluded such a cut, of 28%, would reduce Chorus’s EBITDA by $100 million but that this would not destablisise the company nor put it in financial distress.

He wrote:

‘In my judgement, there is no reason to conclude that a decision from the Government’s regulatory review that reduces the EBITDA of Chorus by $100 million should put the company in financial distress or destabilise the company. In my opinion, given the information discussed above and the strong market position of Chorus, it would be able to sustain even higher reductions. However, I do note that the more adverse the review conclusions, the more negatively it will impact upon the Chorus share price.’

This aligns with Chorus’s market disclosure on 3 December 2012, which made no mention of a debt-default or insolvency risk, and subsequent media comments in September by Chorus chief executive Mark Ratcliffe, including to TV3’s The Nation.

Yesterday, the Commerce Commission determined that copper prices should be cut by only 23%, to $34.44, nearly $2 in Chorus’s favour compared with the assumption on which Professor Bowman based his analysis.

In response, Chorus claimed, for the first time, that this would cost it $1 billion and put it at risk of defaulting on its debt, statements which the Prime Minister has relied upon in his public comments.

The market, however, appears not to believe there is any risk of a debt default, with Chorus shares currently trading at the same price as mid October and higher than in June.

A spokesman for the coalition, Paul Brislen, also chief executive of the Telecommunications Users Association of New Zealand (TUANZ) said Chorus owed the Prime Minister an apology.

“Bluntly, we don’t believe Chorus’s so-called disclosure yesterday and it appears nor does the market,” he said. “We think it was issued for political reasons, to pressure the government to take the extraordinary step of legislating to override the Commerce Commission to boost its profits at the expense of Kiwi households and businesses. This is a company, after all, that paid dividends of $95 million last year and it is impossible to believe it would have done so had it faced the slightest risk of debt default under a new pricing regime that has been signalled since 2011. It should apologise to the Prime Minister, the public and the financial markets for what is at best hyperbole and at worst an apparent attempt to mislead its own shareholders about the financial and regulatory risks it faces.”

Click here for Professor Bowman’s analysis.

ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Pre-Budget: Computer Emergency Response Team, Assemble!

John Key told the country's first ever Cyber Security Summit in Auckland that the government had earmarked funding set up a national Computer Emergency Response Team to help prevent and act on cyber incidents in partnership with the private sector and other organisations. More>>

ALSO:

Job Cutter Goes: Mark Weldon To Step Down As MediaWorks CEO

“When I joined MediaWorks in August 2014, I had a mandate to lead a significant change programme to bring the business back from receivership into a position where it could once again be a strong competitor in the market, with a sound and sustainable future. It was a big brief, laden with inherent challenges, but I took it in good faith and have dedicated myself fully to the goal since." More>>

ALSO:

Must Sell 20 Petrol Stations: Z Cleared To Buy Caltex Assets

Z Energy is allowed to buy the Caltex and Challenge! petrol station chains but must sell 19 of its retail sites and one truck-stop, the Commerce Commission has ruled in a split decision that acknowledges possible retail price coordination between fuel retailers occurs in some regions. More>>

ALSO:

Huntly: Genesis Extends Life Of Coal-Fuelled Power Station To 2022

Genesis Energy will keep its two coal and gas-fired units at Huntly Power Station operating until 2022, having previously said they'd be closed by 2018, after wringing a high price from other electricity generators who wanted to keep them as back-up. More>>

ALSO:

Dammed If You Do: Ruataniwha Irrigation Scheme Hits Farmer Uptake Targets

Enough Hawke's Bay farmers have signed up for water from the proposed Ruataniwha Water Storage Scheme for it to go ahead as long as a cornerstone institutional capital investor can be found to back it, its regional council promoter announced. More>>

ALSO:

Reserve Bank: OCR Stays At 2.25%

Reserve Bank governor Graeme Wheeler kept the official cash rate at 2.25 percent, in a decision traders had said could go either way, while predicting inflation will pick up as the slump in oil prices washes out of the data and capacity pressures start to build in the economy. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news