Bloomberg News

Chorus Considering N.Z. Bond Offer to Build National Broadband

October 16, 2011

Oct. 17 (Bloomberg) -- Chorus, which owns New Zealand’s largest telephone network, is considering a domestic bond sale to help fund construction of a nationwide broadband network.

“We’re going to need to raise some more money and we’ll look at the kiwi market,” Chief Executive Officer Mark Ratcliffe, 56, said in an interview in Wellington, using the local currency’s nickname. “The board will look at that when it’s appointed.”

Chorus is raising money as it prepares to split from Telecom Corp. of New Zealand, the nation’s largest telephone company, in order to partner the government in a NZ$1.6 billion ($1.3 billion) plan to deliver ultra-fast broadband plan to 75 percent of the country’s homes and offices. The company plans to send invitation letters to banks next week as it starts to market a NZ$1 billion loan to help finance the split, two people familiar with the matter said Oct. 14.

Ratcliffe has been visiting foreign bond and share investors over the past month to encourage them to revisit the New Zealand market and back his new company’s plans. Any bond sale will only occur if Telecom shareholders approve the demerger, which must go ahead for Chorus to build the broadband network, in a vote that will be held on Oct. 26.

“What we got to see was people who have not been interested in Telecom for the last three or four years because of all the uncertainty associated with the regulatory regime,” he said. “We got to talk to a whole bunch of people who a year ago wouldn’t have taken the call.”

Chorus has already set up a $2 billion medium-term note program, through which it will issue the equivalent of NZ$600 million of bonds denominated in British pounds, as part of an exchange offer for existing Telecom debt securities.

Corporate Sales

Non-financial corporate bond sales have shrunk this year in New Zealand as the potential for a default by Greece roils financial markets worldwide. Offerings from domestic issuers excluding those by banks, overseas borrowers and municipalities totaled NZ$925 million since Dec. 31, down 29 percent from NZ$1.3 billion in the same period last year, data compiled by Bloomberg show.

The decline has come even as total bond sales expanded to NZ$7.6 billion, from NZ$5.7 billion, the data show.

Telecom, the nation’s largest phone company, has faced a slide in profits amid price control on some services, increased competition and the cost of operationally separating Chorus from its retail units to satisfy government regulation. The company has also invested in new mobile and fiber networks.

Foreign Investors

New Zealand is becoming more attractive to foreign investors amid the concerns about fiscal crises in Europe and the U.S., Ratcliffe said. As a network operator, Chorus offers predictable dividends and cash flows, he said.

“Even some of the more aggressive investors are probably thinking, given all the uncertainty in the rest of the world, this predictable thing over here looks like it could outperform,” he said. “There is so much uncertainty out there that New Zealand has been protected from because we haven’t had the global meltdown.”

National Australia Bank Ltd.’s local unit Bank of New Zealand is the leading corporate issuer in the nation in 2011, selling NZ$1.4 billion of notes, the data show.

Genesis Power Ltd., Air New Zealand Ltd. and Z Energy Ltd. are among non-financial companies to tap the local bond market for funding this year, Bloomberg data show.

Under the terms of its partnership with the government, Chorus will build a fiber network past about 830,000 premises over the next eight years, including in Auckland, the nation’s largest city, and Wellington.

The project will cost as much as NZ$1.6 billion and the government will pay Chorus about NZ$929 million progressively over the period. The difference, as well as routine investment in the company’s existing fiber and copper wire network to about 1.8 million premises, must be funded by Chorus.

“We’ll invest a lot of money in the network,” Ratcliffe said. “There is an initial requirement for NZ$1.7 billion of debt. It’s possible that number might go up through the build phase.”

For news and related information: Stories on Telecom Corp TEL NZ <Equity> CN <GO> Most read New Zealand stories MNI NZ BN <GO> On telecommunications reform TEL NZ <Equity> TCNI RULES <GO> Top New Zealand stories TOPZ <GO>

--With assistance from Sarah McDonald and Garfield Reynolds in Sydney. Editors: Chris Bourke, Garfield Reynolds

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Malcolm Scott at mscott23@bloomberg.net


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