Chorus jumps 11% on NZX debut

UPDATE Nov 23:  Telecom's spun off Chorus division debuted on the NZX this morning at $2.94 (at the low end of a Grant Samuel valuation in the Telecom separation booklet, which saw Chorus in a range of $2.92 - $4.61 and Telecom ex Chorus $1.73 - $2.33).

In late trading, the company's stock [NZX:CNU] was up 10.92% to $3.26 after steady rising through the day then pulling back from a late-trading high $3.28. 

Telecom (now ex Chorus) debuted at the adjusted price of $1.94. Its shares [NZX:TEL] closed up 4.8% to $2.03.

Telecom shareholders received one Chorus share for every five they held in Telecom ($2.94 divided by five equals 58.8 cents, the amount subtracted from Telecom's closing price yesterday).

NZX trading in Chorus stock today is on a deferred settlement basis. Regular trading begins Friday (November 25).

Chorus will begin normal trading on the ASX Thursday week (December 1).

Chorus edges up on ASX debut

Nov21: Shares in Telecom spin-off Chorus climbed on ASX debut, opening at $A2.27 and closing at $A2.30 ($NZ3.07) after hitting an intra-day high of $A2.43.

It was a relatively quiet debut, with 700,000 shares traded.

Chorus [ASX:CNU] began trading on a deferred settlement basis on the Australian exchange yesterday (Monday November 21).

Telecom [ASX:TEL] closed at $A1.46 ($NZ1.95), 41c down on its pre-demerger closing price on Friday of $A1.87. They could have been expected to fall up to 46 cents in a straight deduction of Chorus’ value (Telecom shareholders receive one share in the spun-off Chorus for every five Telecom shares they own).

Analysts aren’t reading too much into yesterday's trades.

Different regulations on each side of the Tasman has seen Telecom and Chorus’ ASX and NZX listings fall temporarily out of kilter. Investors are expected to stay in a holding pattern until regular trading begins.

Deferred settlement trading in Chorus begins on the NZX tomorrow (November 23), with normal trading from Friday (November 25).

Chorus will begin normal trading on the ASX Thursday week (December 1).

The Telecom-Chorus separation will be completed on November 30.

In Telecom's official separation booklet, Grant Samuel valued Chorus' shares in a range of $NZ2.92-$NZ4.61, and Telecom (ex-Chorus) at  $1.73- $2.33.

Forsyth Barr's Guy Hallwright said he expected the total market capitalisaiton of the two companies to remain the same. But lack of information about intra-company transactions in pre-demerger accounts made it difficult to access how the company's would be valued individually.

Shape of the new Chorus
The wholesale-focussed Chorus is seen as a stable, regulated monopoly

However, Deutche Bank's Geoff Zame earlier noted to NBR that the company's outlook is complicated by interlocking variable costs such as the unknown speed with which people will take to fibre, which will in turn feed into the network build cost, cloud.

And while Chorus will have a lock on much of the nation's landline business (at least at the wholesale level) Rosalie Nelson, a market analyst with IDC, told NBR that faster wireless and cellular technologies, such as 4G/LTE, will increasingly emerge as fast broadband alternatives (although Sydney-based analyst Paul Budde told NBR there were, and would always be, practical limits to wireless).

Revenue, earnings
Telecom earlier divvied up its 2011 result between what will become two separate companies.

The company said that, on a pro forma basis, Chorus (including most of the division currently known as Telecom Wholesale) generated:

• revenue and other gains of $1.050 billion
• ebitda of $606 million
• ebit of $286 million
• adjusted pro forma ebitda of $676 million ("after removing the effect of certain one-off costs and asset impairments")

On a pro forma basis, "new"  Telecom generated:

• revenue and other gains of $5.071 million
• ebitda of $885 million
• ebit of NZ$178 million
• adjusted pro forma ebitda of $1.125 billion ("after removing the gain from the sale of AAPT's consumer division and the effect of certain one-off costs and asset impairments") 

Debt allocation
New Chorus will take on approximately $1.7 billion of net interest-bearing debt (inclusive of associated derivatives) and New Telecom approximately $750 million to $950 million of net interest bearing debt (inclusive of associated derivatives), the company said in an earlier statement.

The upside for New Chorus is that its cap-ex will be eased by $929 million in taxpayer funds earmarked for the company under the government's $1.35 billion ultrafast broadband (UFB) project - 50% of which will be in non-voting shares (which will ultimately be repurchased by New Chorus), and 50% in interest-free debt. Assuming Chorus hits its deployment targets, the first repayments are not due until 2025.

Shape of New Chorus
The spun-off Chorus will have its own CEO (the incumbent, Mark Ratcliffe) and its own board, as well as a separate listing.

The network and wholesale division is being "demerged" from Telecom as a condition of participation in the UFB.

Chorus won 74% of the UFB roll-out by premise.

Additionally, Christchurch winner Enable has a clause in its UFB contract allowing for a 50:50 joint venture with Chorus. On Friday, Enable chief executive Steve Fuller declined to comment on the possible joint venture.