Acting Business Editor for the NZ Herald

Chorus shares plunge again despite probe

Communications Minister Amy Adams. Photo / David White
Communications Minister Amy Adams. Photo / David White

The Government's decision to probe Chorus' finances before making a call on intervening in broadband prices has done nothing to calm the market as the company's share price plunged to a new low this morning.

Chorus' shares are down almost 8.4 per cent today to $2.12 - the lowest point since it listed on the NZX in 2011.

The company's share price fell 6.84 per cent on Tuesday and another 5.5 per cent yesterday, closing at $2.315.

More than $200 million has been wiped of the company's value since Tuesday's announcement from the Commerce Commission to cut wholesale broadband prices by 23 per cent.

Chorus was valued at over $1 billion by market capitalisation at the close of the NZX on Monday. Today, it's worth $840 million.

The Government has commissioned an independent assessment of Chorus' financial position and its ability to deliver ultra-fast broadband after the infrastructure company said a cut to broadband prices could put funding for the project in jeopardy.

Communications and Information Technology Minister today said the Government had already been working with "external consultants" to "carry out an independent analysis of Chorus' financial position".

"To complement this work, I have decided to seek an independent assessment at arm's length from the Government," Adams said this morning.

Adams has released a letter she has written to the company, advising it of the probe.

"In order to properly assess the range of options before the Government, I have directed MBIE to work with Crown Fibre Holdings to commission independent advice to the Government of Chorus' financial position and capability to deliver on its contractual obligations with the Government," Adams said.

This review would look into the impact of the Commerce Commission decisions to cut wholesale broadband prices by 23 per cent on Chorus' contractual commitments to deliver on the UFB build and RBI initiative.

"As part of the review, the consulting firm would be asked to assess the scope for Chorus to manage the impact within the constraints of the reduced revenue, and if required, a range of alternative options," a statement from Adams said.

The independent report will be released publicly and once it is received the Government will then consider what to do next.

InternetNZ chief executive Jordan Carter, who is a member of a group opposing the Government's proposed intervention, said he was "very pleased" the review was being conducted.

"The idea of a large corporate getting hundreds of millions of dollars without a careful and independent review of its finances was one of the things that concerned us the most," Carter said.

"We still don't think there's a real financial problem and that Chorus should be able to manage with the prices the commission has set," he said.

He said it would be good if the Government published the terms of reference for the review.

Chorus' finances and its ability to complete UFB have been subject of heated debate since John Key told TVNZ in September that there was "a chance Chorus will go broke" if a draft cut from the Commission stood.

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Earlier this year the Government proposed to set wholesale internet prices itself and overrule the commission, which on Tuesday released a final decision on the 23 per cent cut.

The prices concerned are what infrastructure company Chorus charges internet retailers such as Orcon or Vodafone for monthly broadband services and line access over its copper network.

While Tuesday's cut was not as severe as the almost 28 per cent price drop the regulator tabled in a draft decision last year, Chorus said the move would hit its earnings before interest, tax, depreciation and amortisation (ebitda) by $142 million each year.

Chorus, which owns the copper infrastructure but is also building the fibre-based ultra-fast broadband (UFB) network, claimed the decision would lead to a $1 billion funding shortfall.

Workers installing ultrafast broadband in Tauranga. Photo / NZ Herald
Workers installing ultrafast broadband in Tauranga. Photo / NZ Herald

Chorus chief executive Mark Ratcliffe said it meant the company "simply will not be able to borrow the sums of money we need to make up to a $3 billion investment in UFB".

The company's share price fell 6.84 per cent on Tuesday and another 5.5 per cent yesterday, closing at $2.315.

Rating agencies Standard & Poor's and Moody's said yesterday they are both reviewing the company's credit rating following the regulator's cut.

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