Originally Posted by
USbasedInvestor
I am a US based individual investor who many years ago bought a small position in Telecom New Zealand. I sold a chunk of my Chorus shares on November 5th on the news, and the remainder at significantly lower prices to take a tax loss.
I just discovered this board, and will share my perspective on Chorus and hope you can provide me with some insights, as I will continue to follow Chorus should an investment opportunity arise.
Given the pricing decision, Chorus will have a substantial cash shortfall. As a result, Chorus must eliminate the dividend and make cost and service cuts. Even then Chorus will have a substantial cash shortfall. Unless the fibre rollout is to be stopped or delayed significantly (and nobody is talking about that), Chorus will have to come up with cash somewhere.
Politics appear to prevent overriding the pricing decision, absent a two year long review. Therefore, Chorus has to get the needed cash from: the government, increased debt, or issuing new shares.
From what I have read, the government is not willing to provide additional funding (politics, again). Crown Fibre Holdings has to live within its budget, and (I am not positive on this point) it does not appear they have the budget to just fund the Chorus shortfall. Chorus cannot issue debt to fund the shortfall because they will be too highly leveraged (debt was downgraded today and a negative outlook remains). That leaves only a new share issuance.
The problem with issuing shares is that 1) the stock has no dividend, making it less attractive. 2) if a dividend is maintained at a reasonable level (say 1/3 of the previous dividend), then the cash shortfall is that much greater and the issue must be larger. 3) The cash needed is large relative to Chorus’ market capitalization.
A stock issuance is unlikely without a dividend, and even with a dividend would be so large that the funds could only be raised at prices well below what Chorus has been trading at.
Why does Chorus not talk about delaying or stopping the fiber rollout to live within funds available, at least until the pricing review is done?
How are the politics likely to play out? Is one political party likely to cross over and agree to override the pricing decision, and if so, when would that likely be, given New Zealand’s election cycle?
I have seen a few folks post that all the bad news is out, or priced in or such. This is not just news - it is a serious cash shortfall that must be met, or plans changed a lot. Figuring out how the cash shortfall will be resolved is (to me) key to understanding where Chorus will trade, and when.
Do I have a good understanding of the situation Chorus is in?
Thanks for any help, and feel free to ask me any questions.