Chorus gets $178m UFB loan offer

The Government is offering Chorus what amounts to a $178 million bridging loan to help it cope with any cashflow problems completing construction of the ultrafast broadband network.

However, Chorus said the financing was an expensive “backstop” that also came with a condition that meant it might not be able to pay shareholders any dividends before 2020.

Chorus shares opened down 1 cent at $1.67 on the NZX after the announcement.

Crown Fibre Holdings, the Crown-owned company managing taxpayers’ investment in the UFB network, is drip-feeding Chorus what amounts to $929m of “soft loans” to subsidise the construction of the fibre-optic broadband network.

Under a deal announced today, Chorus would be able to bring forward $178m of that funding by about three years, receiving it from October next year instead of between 2017 and 2019.

Chorus spokesman Ian Bonnar said it would have to pay back more money to Crown Fibre if it took up the earlier financing, which has an effective interest rate of 8.5 per cent.

Communications Minister Amy Adams said the overall $1.35 billion cap on the Government’s investment in the UFB programme would not change.

She has previously also ruled out increasing the true underlying cost of the UFB scheme to taxpayers, which former minister Steven Joyce put at $600m in 2011money.

That was the difference between the Crown’s contribution and what it would eventually be repaid by UFB network builders in real terms in 2011.

Chorus chief financial officer Andrew Carroll described the latest offer as a relatively expensive source of financing but a useful backstop.

“This facility provides useful additional financial flexibility and liquidity if needed and does not have any ongoing financial cost unless drawn,” he said.

The company said it was talking to its banks about amending the terms of their loans.

Bonnar said those discussions had been going for some time and were not new.

If Chorus took up the offer of earlier government financing it would be unable to pay shareholders a dividend before 2020, without Crown Fibre’s approval, unless it first repaid the advance.

The offer could also be cancelled if there was a “material deterioration” in Chorus’ financial position before October.

Chorus has been under pressure to shore up its cashflow since the Commerce Commission ruled the price it should be able to charge for a copper phone line and broadband connection should fall by 23 per cent to $34.44 a month from December.

The company said last year that would create a “$1b funding gap” for the firm, given its obligation to complete its 69 per cent share of the UFB network before 2020.

The copper price cuts are subject to further reviews and a Court of Appeal challenge.