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

 

Errors Found: Electricity Authority Dumps Transmission Pricing Modelling

The Electricity Authority is ditching the cost-benefit analysis at the heart of its controversial attempt to find a new way to divide up costs for the national grid after finding an expanding range of serious computational errors in the work by Australian consultancy Oakley Greenwood. More>>

ALSO:

New Record: Migrant Arrivals At 129,500 A Year

Annual net migration has been steadily increasing since 2012. "This was mainly due to the rising number of migrant arrivals to New Zealand," population statistics senior manager Peter Dolan said. "Fewer migrant departures also contributed to the increase in net migration." More>>

ALSO:

Launched: NASA's Super Pressure Balloon Takes Flight From NZ

NASA successfully launched its football-stadium-sized, heavy-lift super pressure balloon (SPB) from Wanaka, New Zealand, at10:50 a.m. Tuesday, April 25 (6:50 p.m. April 24 in U.S. Eastern Time), on a mission designed to run 100 or more days floating at 110,000 feet (33.5 km) about the globe in the southern hemisphere's mid-latitude band. More>>

ALSO:

Trade Agreements: TPP Minus US Starting To Gain Ground

The Japanese government is picking up the pace on reviving the Trans-Pacific Partnership trade and investment deal, with talks scheduled next month among the 11 countries left in the pact after the withdrawal by the US after the election of president Donald Trump. More>>

ALSO:

PACER:

Prices Up 2.2%: Annual Inflation Highest In Over Five Years

"Rising petrol prices along with the annual rise in cigarette and tobacco tax lifted inflation," prices senior manager Jason Attewell said. "Petrol prices in New Zealand are closely linked to global oil prices, and cigarettes and tobacco taxes rise in the March quarter each year". More>>

ALSO:

Undertaxed? NZ Income Tax Rate Second Lowest Among Developed Nations

New Zealand workers pay the second smallest portion of their income to the government among developed nations and less than half the average ratio of their Organisation for Economic Cooperation and Development peers. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news