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

 


S&P gives Chorus 3 months to stave off downgrade

S&P gives Chorus 3 months to stave off downgrade of one or notches

Feb. 5 (BusinessDesk) – Credit rating agency Standard & Poor’s says Chorus must get its debt to below four times operating earnings to stave off a downgrade to its BBB credit rating.

Keeping a BBB rating hinged on whether the company could maintain the terms of its banking covenants, said credit analyst Paul Dufferin in a statement confirming the telecommunications infrastructure provider remains on negative credit watch, where it has sat since Nov. 5.

That was the date the Commerce Commission finalised its decision to cut regulated pricing for unbundled bitstream access (UBA) by 23 percent, threatening both Chorus’s ability to fund its role as a lead contractor in the government-backed roll-out of fibre-based ultra-fast broadband, and the economics of UFB products.

UBA services are a key component of existing telecommunications infrastructure, based on ageing copper wire networks, which the UFB fibre network is intended to replace.

“We expect to resolve the CreditWatch within the next three months or so, by which time we expect further clarity on the above-mentioned issues,” said Dufferin. “If Chorus can identify and commit to operating and capital management strategies that will allow the group to maintain an adequate level of covenant headroom, together with fully adjusted debt to earnings before interest, tax, depreciation and amortisation before four times, then we will likely affirm the BBB rating.

“However, we expect the outlook to be negative in this scenario, given the expected execution risks associated with these strategies and the rollout of the UFB network,” he said.

“If we still consider that these initiatives will not provide adequate flexibility within the group’s debt facility covenants, then a lowering of the long-term rating by one or more notches is likely.

The move follows Moody’s Investors Service’s decision on Jan. 21 to downgrade Chorus to Baa3 from Baa2, the lowest possible investment grade rating.

Chorus is working through plans that could include cost and dividend cuts, capital-raising, and limited renegotiation of the terms of its UFB contract, and has filed a challenge to the Commerce Commission determination in the High Court.

Dufferin said that “if the UBA decision proceeds as proposed, we expect the group’s debt to earnings before interest, tax, depreciation and amortisation – assuming Chorus takes no corrective actions – to increase to the mid-five times level over the next three to five years, which is well in excess of financial covenants and tolerances for the BBB rating.”

Last year the Commerce Commission proposed cutting the network operator’s pricing on its copper line services, which the company says has left a $1 billion hole in the funding to finance roll out of the government-sponsored ultrafast broadband network. Chorus is in negotiations with Crown Fibre Holdings over the building of the network, but Communications Minister Amy Adams has indicated the government expects the company to fill most of the $1 billion hole.

As part of its contract with CFH, Chorus has to maintain an investment grade credit rating if it wants to pay dividends to its shareholders without the Crown entity’s approval.

Chorus’ stock rose 2.2 percent to $1.38 in afternoon trade, and has dropped 52 percent in the past 52 weeks.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Strike: Lyttelton Port Workers Vote To Escalate Dispute

Members of the Rail and Maritime Transport Union (RMTU) at Lyttelton Port today voted to escalate their industrial action. Around 200 RMTU members have been operating an overtime ban since 17 December and today they endorsed a series of full withdrawals of labour at the port. More>>

ALSO:

Scoop Business: NZ Dollar Falls To 3-Year Low As Investors Favour Greenback

The New Zealand dollar fell to its lowest in more than three years as investors sold euro and bought US dollars, weakening other currencies against the greenback. More>>

ALSO:

Scoop Business: NZ Govt Operating Deficit Smaller Than Expected

The New Zealand’s government’s operating deficit was smaller than expected in the first five months of the financial year as a clampdown on expenditure managed to offset a shortfall in the tax-take from last month’s forecast. More>>

ALSO:

0.8 Percent Annually:
NZ Inflation Falls Below RBNZ's Target

New Zealand's annual pace of inflation slowed to below the Reserve Bank's target band in the final three months of the year, giving governor Graeme Wheeler more room to keep the benchmark interest rate lower for longer.More>>

ALSO:

NASA, NOAA: Find 2014 Warmest Year In Modern Record

Since 1880, Earth’s average surface temperature has warmed by about 1.4 degrees Fahrenheit (0.8 degrees Celsius), a trend that is largely driven by the increase in carbon dioxide and other human emissions into the planet’s atmosphere. The majority of that warming has occurred in the past three decades. More>>

ALSO:

Scoop Business: New Zealand’s Reserve Bank Named Central Bank Of The Year

The Reserve Bank of New Zealand’s efforts to stifle house price inflation by using new policy tools has seen the institution named Central Bank of the year by Central Banking Publications, a publisher specialising in global central banking practice. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news