Chorus gets access to early Crown Fibre funding for a price

Chorus [NZX: CNU], the telecommunications network operator tasked with building the bulk of the nation's ultrafast broadband network, has cut a deal with Crown Fibre Holdings to bring forward funding of $178 million, though at a high interest rate and most likely at the cost of the company paying shareholders a dividend.

The Wellington-based company has a conditional agreement with Crown Fibre Holdings, the government entity funding the UFB build, which would grant Chorus a facility to bring forward funding budgeted to be spent in the 2018 and 2019 financial years of the fibre programme from October next year, the company said in a statement. The facility would have an effective finance rate of about 8.5 percent, meaning Chorus would receive between $141 million and $149 million if it fully drew on the advance.

The funding would also rely on there not being a material deterioration in Chorus's position, including the Commerce Commission's review of the company's regulated copper service prices not resulting in a lower price than the initial benchmark. Chorus also wouldn't be allowed to pay a dividend before drawing on the facility, and if it chose to use it, shareholders wouldn't receive a payment without Crown Fibre Holdings' approval before December 2019.

"This facility provides useful additional financial flexibility and liquidity if needed and does not have any ongoing financial cost unless drawn," chief financial officer Andrew Carroll said. "We have been discussing this initiative for some time and appreciate CFH's ongoing support as we work through the challenges presented by the Commerce Commission's initial pricing principle decision."

Earlier this year Chorus announced plans to scale back re-investment in its ageing copper network, which faces regulated price cuts, while introducing new unregulated revenue streams and cutting costs including probable job cuts. It also suspended payment of an interim dividend.

Last year the commission proposed cutting the network operator's pricing on its copper line services, which Chorus said left a $1 billion hole in the funding for the roll out of the government-sponsored UFB. In March, Crown Fibre Holdings gave Chorus greater flexibility in building the network provided it meets the agreed deadline, and has aligned funding with completed work.

Chorus is appealing a High Court ruling upholding the way the regulator set a theoretical price for services on the copper lines, and has also requested a more complete final pricing principle method is used to set the price. The regulator anticipates it will come up with a final price by April next year.

Today's conditional agreement is subject to Chorus's lending syndicate agreeing to certain matters, and the company said it's in talks with its banks on potential amendments to its existing facilities. The network operator would also have to meet its UFB build targets to access the funding.

The shares rose 0.6 percent to $1.68 yesterday, and have gained 17 percent this year, after being punished by investors last year over the regulatory risk.

(BusinessDesk)