Chorus and Crown Fibre Holdings, the company managing the New Zealand Government's investment in its nationwide fibre rollout, have inked a conditional agreement giving Chorus the option to bring forward up to NZ$178 million in network investment funding.
NZX-listed Chorus has the option to bring forward the funding that is currently budgeted to be spent on Chorus’ Ultrafast Broadband (UFB) programme in the 2018 and 2019 financial years.
However, it is not cheap finance. At an effective finance rate of around 8.5% at today’s rates, Chorus says it reflects a relatively expensive source of funding and would translate into between NZ$141 and NZ$149 million of advance funding if fully drawn, depending on timing.
Chorus CFO Andrew Carroll said the agreement is a "useful funding backstop".
Chorus has been embroiled in regulatory wranglings with the Commerce Commission, which lowered wholesale the price it could charge for legacy copper broadband services. That has damaged Chorus' revenue streams, forcing it to rethink how it delivers on its contract to build the bulk of New Zealand's partially government-funded fibre network.
In early trading today Chorus shares, which are already heavily discounted from a high of NZ$3.54 in September 2012, fell by a cent to $1.67.
“Chorus is already reshaping its business model and has a range of initiatives that will commence in financial year 2015 to address the economic impact of the interim benchmarking pricing that is due to apply from 1 December.
"This facility provides useful additional financial flexibility and liquidity if needed and does not have any ongoing financial cost unless drawn."
Carroll said the option is one of many Chorus has underway to bridge the funding gap.
Access to the funding is contingent on Chorus meeting its build milestones, Chorus continuing to be able to operate under its lending agreements and agreeing certain matters with Chorus’ lending syndicate.
Chorus is currently in discussions with its banks on a range of potential amendments to its existing facilities.
If Chorus chooses to use the facility, Chorus would be unable to pay a dividend before December 2019 without CFH approval or without normalising its CFH funding
The facility can be drawn from October 2015 and will automatically terminate if Chorus does not use it by 30 June 2016.