Stanners on Vodafone NZ’s missing-in-action IPO

The latest on that $2 billion listing that was supposed to be happening ... right about now.
Vodafone chief executive Russell Stanners says "It’s not something I’m working on at the moment – and these things take a lot of work."

A Vodafone New Zealand IPO is off the table for now – and if any listing does ever go ahead, it will be some time away, chief executive Russell Stanners says.

A public float of Vodafone’s New Zealand business seemed all on late last year.

Vodafone NZ chief executive Russell Stanners and his finance director, John Tombleson, embarked on a November/December roadshow that saw them present to fund managers in New Zealand, Australia, Asia, Europe and the US.

The roadshow did not present a formal listing proposal.

Still, the NZX must have been licking its chops.

Messrs Stanners and Tombleson reportedly talked up a $2 billion float that would value Vodafone’s NZ operation at $4.03b – or about 6.6 operating earnings (for 2017, Vodafone NZ reported ebitda up 8.7% to $462 million on revenue that increased 3.4% to $2.025b). That put it in the same ballpark as Telstra (6.7x earnings), and cheaper than Spark (8.7x earnings).

That would fill a Xero-sized hole on the local exchange quite nicely.

It was true the roadshow was a sounding board affair. Key details were apparently missing, such as how much debt Vodafone NZ would have to take on, and capex outlook was said to be conspicuously absent (no small detail with an upgrade to 5G around the corner).

Yet UK-based Vodafone formally notified its shareholders that an IPO was on the cards for its New Zealand business. It seemed the clear plan B after the Commerce Commission’s scuttling of the Sky TV merger.

It seemed all-systems-go. Before Christmas, fund managers were told Vodafone would wait until the February earnings season was out of the way, then formally kick off the IPO process.

Deutsche Bank (represented in New Zealand by Craigs IP), Bank of America Merrill Lynch, UBS were working on the float.

And then … nothing.

'Market wobble'
Speaking to NBR this morning, Mr Stanners struck a relaxed tone about the missing-in-action listing.

“We obviously had a look at doing an IPO but there was a bit of a market wobble,” Mr Stanners says.

The ASX, NZX and Dow Jones Industrial Average did all dip in the New Year and continue to be volatile as a US-China trade war threatens (see charts at foot of story).

However, the local bourse has been relatively buoyant, and some Australasian tech stocks, noticeably Xero, are in the green for the year (and the question of whether Vodafone NZ would be listed on the NZX, ASX or dual-listed was left open in the roadshow; NZX declined comment for this article).

But beyond market machinations, Mr Stanners indicates Vodafone is happy with the status quo. “We had a good look at [an IPO] but we never committed to it,” he says.

“At this stage we’ve made the decision we’re not proceeding at this point. We’re happy with where we’re at, at the moment.”

NBR asks if it is still possible there might be a Vodafone NZ IPO later this year?

“It’s not something I’m working on it at the moment – and these things take a lot of work,” Mr Stanners replies.

Vodafone's Plan A was a merger with Sky TV. Plan B was an IPO. Now the company's fully-owned NZ subsidiary seems to be onto Plan C: the status quo. (Vodafone and Sky CEOs Russell Stanners and John Fellet.) (Photo: Chris Keall)

Separately, Vodafone emailed NBR a statement on the IPO status. The email is perhaps more open to the prospect than Mr Stanners. It read: "The status has not changed. Vodafone Group intends to explore the potential of an IPO of Vodafone NZ. It is important to recognise that no final decision has yet been taken on whether to proceed with an IPO or not."

Areas of uncertainty
NBR did note some warning signs even before markets swooned in the New Year.

Reports in the AFR and the Australian indicated fund managers were broadly positive about Vodafone NZ and its valuation but that (as the latter’s Dataroom gossip column put it, “One concern is that New Zealand remains a small market and limited opportunities exist for expansion. Counting in the favour of New Zealand’s largest mobile phone operator is the fact that there are few deals going now while plenty of money still needs to find a home.”)

There was also the overhaul of the Telecommunications Act on the horizon, a Commerce Commission investigation into the mobile market, and a Chorus proposal that it build a single 5G network that retailers Spark, Vodafone and 2degrees share.

All of those factors have now become much more problematic. And, although he did not raise any as reasons for the IPO being put on hold, Mr Stanners acknowledges they will complicate any attempt to reanimate it. All involve uncertainty which is, of course, investors' No 1 pet hate.

This morning, Mr Stanners fumed that a last-minute change to the Telecommunications (New Regulatory Framework) Amendment Bill could allow Chorus to control layer 3 fibre, effectively allowing it to move onto retailers’ turf.

Vodafone (and fellow retailers Spark, 2degrees and Vocus) on the other hand, have told a select committee that the bill’s provisions for fibre unbundling need to be strengthened. That is, politicians should let them move some way on to Chorus’ turf to maximise competition and innovation (read more about the legislative tussle here).

Mr Stanners is also furious about a recent 5% Chorus price rise, which he says was a “bait-and-switch” tactic by the network operator, and an effort to manipulate the anchor product pricing that will form part of the new legislation (more on this point tomorrow).

At this point, there is no indication whether the final bill will side with Chorus or the retailers. But it is known that the legislation will shape the rules of the telco game after 2019, so it will have a big influence on retailers' fortunes.

There’s also another layer of regulatory uncertainty. While retailers told the Commerce Commission there was no need for an investigation into the mobile market, the regulator has decided instead to broaden an inquiry started last year into a broad-ranging fishing expedition, the first phase of which won’t wrap up until June. Former communications minister Simon Bridges saw the relative paucity of mobile virtual network operators in New Zealand as a trigger for the ComCom mobile market investigation (a rare though so far unsuccessful example of an MVNO is the Warehouse Group's Warehouse Mobile, which resells 2degrees' service). Where the investigation will land now is anyone's guess. (Read more about the ComCom probe here.)

Lastly, Communications Minister Clare Curran has made comments indicating she is leaning against Chorus’ proposal for a single 5G network, to which Vodafone, Spark and 2degrees are so ferociously opposed (read more on the 5G debate here). However, Ms Curran, who says she is waiting for more information promised by Chorus, is still some distance from a final verdict. 

The minister and MBIE will also have to make a call on how spectrum will be allocated for Vodafone, Spark and 2degrees’ respective 5G upgrades. The equivalent processes for 3G and 4G were a political bunfight royale, and it’s shaping up to be no different this time. As things stand, Vodafone will face it as a private company.

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POSTSCRIPT: That wobble in full

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