Hamish Fletcher

Business reporter for the NZ Herald

Chorus shares plumb new depths on dividend cut tip

Chorus Chief Executive Mark Ratcliffe said the 'ongoing uncertainty' faced by the company meant it had to withdraw its dividend guidance.
Chorus Chief Executive Mark Ratcliffe said the 'ongoing uncertainty' faced by the company meant it had to withdraw its dividend guidance.

Chorus' share price reached a new low this morning as the infrastructure company announced it would pull guidance on its payout to shareholders for this financial year.

The company's share price fell to $1.92 - a record low since its 2011 listing - before climbing back to $19.4 around 10:30am, a drop of 3.24 per cent on Friday's close.

Chorus was "softening investors up for a dividend cut", said one market commentator this morning.

The NZX-listed company previously indicated it would pay out 25.5 cents per share for the 2014 financial year but withdrew this guidance this morning.

"At this time of unprecedented levels of of investment by Chorus, withdrawing dividend guidance is a regrettable by necessary step in light of the ongoing uncertainty Chorus face," chief executive Mark Ratcliffe said.

The announcement follows Communications Minister Amy Adams asking Chorus to indicate how it plans to respond to the Commerce Commission cutting wholesale broadband prices by 23 per cent.

When the regulator made this announcement earlier this month, Chorus said the move would hit its earnings before interest, tax, depreciation and amortisation (ebitda) by $142 million each year.

Chorus' revenues are linked to these broadband prices and the company claimed the decision would lead to a $1 billion funding shortfall.

Ratcliffe said earlier this month it meant Chorus "simply will not be able to borrow the sums of money we need to make up to a $3 billion investment in the UFB [the ultra-fast broadband network]".

Chorus is one of four private partners building the Government's UFB network and because of claims the broadband price cuts could put the project at risk, Adams has indicated it could intervene and set prices itself.

As part of this process, Adams has asked Ernst & Young Australia to investigate Chorus's financial position and its ability to deliver on its contractual commitments for UFB and the rural broadband initiative.

Mint Assets Management's Shane Solly said this morning that Chorus' announcement looked like it was "softening investors up for a cut to dividends".

"It's a prelude to it, that's for sure. It's not an unreasonable expectation for them to trim dividends given the uncertainty. Management teams don't generally like to do that but this quite an unusual circumstance," Solly said.

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