Chorus trading doubts raised

STACEY KIRK AND TOM PULLAR-STRECKER
Last updated 18:24 16/12/2013

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The Telecommunications Users Association will tomorrow ask financial regulators to investigate whether there may have been insider trading in Chorus shares ahead of a Government audit report.

Chief executive Paul Brislen said he would write to the NZX, the Financial Markets Authority (FMA) and the State Services Commission, asking them to investigate what he described as unusual movements in Chorus’ share price.

The FMA said it had already received one complaint about trading in Chorus shares on Friday, which it would look into with the NZX, and would respond to the Telecommunications Users Association once it received its letter. 

The Government has brushed off the concerns.

Chorus shares rose 10 cents to $1.47 on Friday, when the Government received a report from Ernst & Young Australia on Chorus’ ability to meet its ultrafast broadband and rural broadband initiative contracts with the Crown.

The Government raised some eyebrows by releasing the report earlier than expected, on Saturday.

Forsyth Barr analyst Blair Galpin said the report was positive for Chorus shareholders, both because it estimated the company could reduce its funding shortfall to between $200 million and $250m and because it recognised Chorus could not avoid paying dividends to shareholders for more than a couple of years. 

However, he said the report was as expected, while Craigs Investment Partners analyst Arie Dekker said it contained ‘‘no new information’’.

Brislen said the lobby group had also been suspicious about an increase in Chorus’ share price prior to Communications Minister Amy Adams releasing a discussion paper on August 7 that proposed assisting Chorus by fixing the price it could charge for access to its copper network.

"Looking at the graphs, it seems when Adams makes a market-sensitive announcement, shares in Chorus move significantly beforehand but not after," Brislen said.

"The strange price  movements in Chorus shares over the last year merit investigation by the NZX and FMA in order to assure everyone that no insider trading has occurred."

Adams said she would not pay too much attention "as a number of the claims made by the Telecommunications Users Association ... have subsequently proven to not be correct."

"If [the association] has evidence of wrong-doing then they should present it, and I would hope that they would have before making allegations of this sort," she said.

Analyst Forsyth Barr today upgraded Chorus’ shares from "hold" to "accumulate" despite the sense of crisis that has surrounded the company since October, when the Commerce Commission ruled the wholesale price of access to its copper network should fall by $10.54 a month.  

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Galpin said in a research note that he felt the sell-off of Chorus’ shares had been "overdone", setting a 12-month target price for Chorus shares of $1.90.

There has been speculation Chorus might need to raise fresh equity through a discounted rights issue to shore-up its balance sheet, but Galpin said he expected the company to wait for two years, until the result of a copper pricing review was known, before deciding on an equity-raising.

Prime Minister John Key said Ernst & Young’s report did not necessarily imply a bailout of Chorus was necessary. "I don’t think it outlines exactly what the response from the Government has to be other than there will probably need to be a response," he said.

- Fairfax Media

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