The value of infrastructure company Chorus dropped again yesterday as long-term investors were replaced by those speculating on an eventual resolution to the ongoing debate about the state of the company's finances. Business editor Dene Mackenzie investigates.
Infrastructure company Chorus faces some tough choices in coming months as it works with the Government to try to resolve issues around the roll-out of the ultra-fast broadband network in New Zealand.
The value of the company plunged again this week with shares down as low as $1.47 yesterday before buyers looking for a bargain entered the market and pushed the shares back up over $1.50.
In February, the shares were trading at $3.15 as the future looked brightfor the company entrusted with the major part of the Government'sprized UFB network.
That changed quickly when the Commerce Commission issued a ruling halving the price for internet service providers paid to access the company's legacy copper wire network.
Chorus startled the market by saying the lower price would knock about $142 million off its 2015 profit and could lose it access to about $1 billion of funding.
On Thursday, all political parties in Parliament, except National, said they would oppose any attempt by Communications and Information Technology Minister Amy Adams to legislate to overrule the commission's decision. After the comments were widely posted on social media, shares in Chorus plunged to new lows.
By yesterday, the company was valued about $600 million, $100 million lower than Thursday and almost half the $1.13 billion when it was spun out of Telecom in late 2011. Labour Party associate ICT spokeswoman Clare Curran had done a lot of work previously on the issue of whether Chorus was suitable to take on the UFB project.
Yesterday, she remained a critic of the process and said it was important the true state of Chorus' financial situation was made available. Ernst & Young was conducting an independent review of the company for Ms Adams.
''We are waiting for Amy Adams' report which comes out on December 12, the day Parliament rises. Our concern is whether or not it will be transparent. We need the full report from Ernst & Young. We don't want what the minister usually does - issuing a sanitised and redacted version.''
If the issue was short-term cash flow, intervention by the Government would become clearer. If the problem was more systemic, questions would need to be answered whether Chorus under-bid for the UFB contract in the expectation it could fund it from an unchanged price for access to its copper wire network, Ms Curran said.
''This is a legacy network which has been paid for over and over again. Telecom didn't do any investment in the network so why are consumers being asked to pay a higher price for internet access? Why should a private company be bailed out? This is an absolute problem for the Government, particularly because the UFB network was a major election promise.''
Asked who she thought would pay for the fibre network build if Chorus said it could not meet its obligations, Ms Curran only said she was sure it would be built. People would not stop using the internet.
She believed Chorus was ''being cute'' with the Government and public and she did not think the country should be held to ''held to ransom'' on the issue.
''Chorus needs to be careful about its public statements,'' she said.
Chorus chief executive Mark Ratcliffe said in a statement Chorus remained hopeful it could work with the Government to find a solution to the issues outlined in a previous announcement by the company.
''We remain hopeful that as the major partner in New Zealand's largest public-private partnership we can work with the Government to find a timely solution to the current issues that provides the certainty we need to get on with delivering this once-in-many-generations infrastructure.''
Chorus was investing about $3 for every $1 of government funding in the UFB initiative and the company was ahead of its build programme, he said.
Among the options Chorus had been discussing with the Crown was whether Chorus was still a credible UFB partner in the way intended at demerger and how Chorus might deliver the balance of its programme despite the ''very material'' funding gap in Chorus' business implied by the commission's decision.
Chorus would review its current capital management settings, including capital structure, dividend policy and the potential need for a large future equity-raising, he said.
