Chorus shares nosedive as Adams calls independent review of finances, UFB capability

UPDATE: Chorus shares [NZX:CNU] have nosedived 9.29% to a new low of $2.10 on news of an independent inquiry into the company by the government - the government investors had hitherto been counting on to make good on its promise to over-rule a Commerce Commission-mandated price cut with new legislation.

Chorus listed in November 2011 at $2.94.

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EARLIER: ICT Minister Amy Adams has today instructed officials to commission an independent assessment of Chorus’ [NZX: CNU] financial position and its capability to deliver on its contractual commitments under the Ultrafast Broadband (UFB) and Rural Broadband Initiatives.

An independent review of Chorus' position has been a key demand of the Coalition for Fair Internet Pricing.

Fast moving events this morning have seen Coalition member CallPlus lining up to sue the minister - an action that may be be tempered by the minister's 9am announcement [UPDATE: CallPlus CEO Mark Callander tells NBR he welcomes the review "but that is a separate issue and does not impact the proceedings that we have issued this morning."]

Sharemarket analysts boosting Chorus were already nervous yesterday that the government was pausing to assess its options rather than immediately making good on its promise to over-ride the Commerce Commission's determination for a 23% wholesale price cut on copper lines. Today's news will unnerve them further.

Chorus says if the Commerce Commission's 23% cut goes ahead, it will leave the company with a "$1 billion shortfall", meaning it will not be able to borrow enough funds to complete the UFB. Analysts boosting the stock are now wondering why the government hasn't immediately made good on its promise to over-ride the regulator with changes to the Telecommunications Act. Is it leaving a diplomatic pause, or is it genuinely reassessing the situation?

Rival assessments already on table
Dark comments from Chorus saw S&P and Moodys put it on a downgrade review yesterday. The Coalition said it did not believe Chorus' take, and rolled out research by an Auckland University academic that says Chorus is at "no risk of financial distress."

Timeframe
Ms Adams has written to Chorus informing the company of her decision.

The letter does not outline a timeframe, but a rep for the minister's office tells NBR the aim is to complete the review by the end of the year.

Arm's length
“In recent weeks, I have had the Ministry of Business Innovation and Employment (MBIE) work with external consultants to carry out an independent analysis of Chorus’ financial position across a range of pricing options, based on publicly-available information," Ms Adams said this morning.

“To complement this work, I have decided to seek an independent assessment at arm’s length from the Government.

“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.”

The review would assess the impact of the Commerce Commission’s decisions on both the Unbundled Copper Local Loop and the Unbundled Bitstream Access prices on Chorus’ ability to deliver on its contractual commitments under the Ultra-Fast Broadband and Rural Broadband Initiatives.

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.

At the end of the review, the report would be provided directly to Ms Adams, and a copy of the report released publicly.

Precedent for major change
The review comes at a time when Tony Abbott's incoming government across the Tasman is making wrenching changes to the Federal government-backed National Broadband Network, which is being scaled back from fibre-to-the-premise (home or business), to fibre to the node (neighbourhood), with copper maintained for the last leg.

ckeall@nbr.co.nz

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