Coalition stands by claims Chorus is at no risk of insolvency





The Coalition for Fair Internet Pricing stands by its opinion that the communications it has received from the Australian Stock Exchange (ASX) and New Zealand Stock Exchange (NZX) indicate than neither exchange holds evidence to support New Zealand prime minister John Key’s assertion that Chorus Ltd (CNU) could become insolvent if a December 2012 Commerce Commission recommendation on copper broadband and voice services pricing is implemented.

The coalition also accepts that NZX does not directly comment on individual issuers or their financial positions.  The NZX has made an announcement to this effect today.  The ASX has made no comment at this time.

Yesterday the coalition released communications from both the NZX and the ASX on whether or not Chorus was in breach of its continuous disclosure obligations.

The coalition had asked the exchanges to investigate Chorus’s continuous disclosure compliance after Mr Key told national television on Friday 13 September that the copper network monopolist could go broke were the Commerce Commission draft determination implemented.

The ASX advised the coalition that it had reviewed the matter but “has not formed the view … that there is, or is likely to be, a false market in [Chorus]’s securities”.  It advised: “If you do not see a market announcement about the issues you have raised, you should assume either that our investigation has concluded that there was no breach of the Listing Rules or, if there was, it has been dealt with to our satisfaction on a confidential basis.”

The NZX advised that it “has no reason to challenge [Chorus]’s view that it remains in compliance with its continuous disclosure obligations under the NZSX Listing Rules”.

The coalition acknowledges that Chorus made a disclosure to the market on 3 December 2012 in which it said “the collective impact of these two changes [the UBA decision becoming final] … could require Chorus to fundamentally rethink its business model, capital structure and approach to dividends”.

However, the coalition does not believe this represents a disclosure of a risk that Chorus could become insolvent.  This is confirmed by the fact the monopolist’s share price fell only about 15% to NZ$2.91 after the Commerce Commission report was released, which is not an indication the market believed it had been advised of an insolvency risk.

Moreover, the following day, on 4 December 2012, Chorus announced that Standard & Poor’s had made no change to the company’s credit rating.  

Since then, the chief executive of Chorus, Mark Ratcliffe, has consistently refused to agree that his company could go broke or that the roll-out of ultra-fast broadand (UFB) is at any risk, including in interviews with Radio New Zealand and TV3’s The Nation.

 A spokeswoman for the coalition, Sue Chetwin, also chief executive of Consumer NZ, said the prime minister and other opinion leaders should desist from claiming Chorus was at risk of insolvency.

“Chorus is an important part of our economy,” she said.  “It is part of the NZX15 index, has a market capitalisation of over NZ$1 billion, is rolling out ultra-fast broadband (UFB), made a profit of NZ$171 million last year and paid NZ$95 million in dividends to its shareholders.  It will remain profitable under all pricing scenarios and any suggestion it is at risk of going broke is absurd.”

The Coalition for Fair Internet Pricing was founded by Consumer NZ, InternetNZ, and the Telecommunication Users Association of New Zealand (TUANZ) and is supported by CallPlus and Slingshot, the Federation of Maori Authorities, Greypower, Hautaki Trust, KiwiBlog, KLR Holdings, National Urban Maori Authorities, New Zealand Union of Students’ Associations, Orcon, Rural Women, Te Huarahi Tika Trust and the Unite Union.

A Covec study for the coalition, which has been peer reviewed by Network Strategies and found to be conservative, concluded that the government’s proposed copper tax would cost Kiwi households and businesses between $390 million and $449 million between 1 January 2015 and 31 December 2019 over the price for copper broadband and voice services that Commerce Commission work indicates is fair.  The latest demands by Chorus would take this cost to Kiwi households and businesses to $979 million.