The Chorus fiasco

The saga involving one of New Zealand's publicly-listed companies seems likely to drag on for a while longer as the Government steps in to investigate the financial wellbeing of infrastructure company Chorus.

More than $200 million was wiped off the value of Chorus in a week following the Commerce Commission decision to halve the cost for access to the copper wire network which Chorus operates throughout the country.

Access to the copper network is important to Chorus competitors because, without it, they have no opportunity to compete for customers offering a package of deals slightly different from the others.

Opponents of Chorus, and there are many, believe the price of access has been too high for too long and New Zealanders are being unfairly penalised by Chorus keeping access prices high.

This is not a new argument. Nor is it one that is going to be settled any time soon. In fact, it has the potential to spread across a wide range of New Zealand-listed companies.

Chorus estimates the commission's decision to halve access costs will wipe about $142 million off its 2015 profit. The company, which is installing the Government's ultra-fast broadband (UFB) network, also believes it will suffer a $1 billion funding shortfall during the UFB installation period.

So far, investors in the company have seen their shares lose value. The loss of value was exacerbated by two international credit rating agencies putting Chorus on negative credit watches, with the potential to downgrade the company further. Chorus chief executive Mark Ratcliffe faced a difficult decision before issuing a statement warning about the profit downgrade and funding shortfall, knowing the Government would be watching.

Communications and Information Technology Minister Amy Adams wrote to Mr Ratcliffe advising him an independent investigation was about to be launched to assess the likelihood of Chorus being able to complete the UFB contract.

The UFB network is a key project for the Government, a prize it does not want to lose in 2014 - an election year. Ms Adams will have every intention of finding answers and quickly - and she must. She asked Mr Ratcliffe to reply by November 18 on what steps Chorus was taking following the review.

Labour Party leader David Cunliffe does not want the review to be a snow job, which is completely correct.

There does, however, also need to be consideration for the wider implications of the fiasco that has now become Chorus.

The threat of regulation hovers over several sections of the NZX, particularly power companies such as Mighty River Power and Meridian, infrastructure companies like Vector and Sky Network Television, which has faced the threat from Opposition MPs of some sort of government control. And Sky City Entertainment, which has secured Government support to have extra poker machines in return for building a convention centre faces having the deal revoked if Labour leads the next government.

A similar threat now hangs over the possible float of Genesis Energy, following this week's Waitangi Tribunal decision.

From afar, large institutional investors must soon start believing New Zealand's sharemarket is becoming Third-World, at best. Investors like nothing better than certainty and any threat of regulation will see them removing money from this country. Those seeking a so-called fair deal for one part of the equation are completely ignoring the other part of the process whereby investors are losing money.

To grow, listed companies rely on shareholders to invest and remain committed. The current situation is entirely unsatisfactory. Ms Adams must move quickly before more damage is done to the reputation of New Zealand's financial markets.

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