Chorus, the telecommunications network operator, has suspended dividend payments as regulatory uncertainty weighs on its balance sheet, and has renegotiated its banking covenants to give it some financial breathing space.
The Wellington-based company won't pay a dividend until June 30, 2015 or the conclusion of the Commerce Commission's final ruling on how much Chorus can charge customers on its regulated copper-based services, whichever is the later, it said in a statement. It has also amended the terms of its bank debt to allow for weaker earnings relative to its borrowings, and will limit how much it draws on the facilities until the commission's review process is completed.
"The changes we have agreed with the banks reflect Chorus's focus on achieving financial stability, particularly with the Commerce Commission's pricing review process now scheduled to continue through to April next year," chief financial officer Andrew Carroll said. "We also have an extensive range of operating cost, capital expenditure and revenue initiatives in train to help address this ongoing period of price uncertainty."
Last week Chorus cut a deal with Crown Fibre Holdings, the government entity funding the ultrafast broadband build, to let the network operator bring forward funding of $178 million to ensure it has the cash to build the bulk of the national fibre network. If Chorus draws on the funding it won't be able to pay a dividend without Crown Fibre Holdings' permission before December 2019.
Today's announcement increases Chorus's bank covenant levels to 4.25 times net debt to earnings before interest, tax, depreciation and amortisation at pricing levels in line with the regulator's initial decision, from its current 3.75 times. It also extends the maturity of the facility to July 31, 2016 from November 2015, and waives rights potentially available to the banks associated with the material reduction set to take effect from December this year.
