Telecom has suspended its dividend re-investment plan for its first quarter dividend, blaming uncertainty about the Government's broadband plans.READ ALSO: Telecom won't replace director, cites Crown fibre uncertainty
Telecom has suspended its dividend re-investment plan for its first quarter dividend, blaming uncertainty about the Government's broadband plans.
READ ALSO: Telecom won't replace director, cites Crown fibre uncertainty
Insider trading in its own stock
Forsyth Barr analyst Guy Hallwright explained the logic behind the move to NBR: "Telecom has a bid in with Crown Fibre Holdings. There is no announcement yet from CFH and Telecom has legal advice that it could technically be an insider in its own stock if it bought back the amount it issued under the dividend reinvestment plan as is customary. Hence, it has suspended the scheme.
"Insider trading rules say you can't suggest someone buys shares if you have inside info (which makes you an insider). I guess a dividend reinvestment scheme counts as suggesting people buy shares in a legal sense."
At least, that's how Telecom's lawyers have cautiously interpreted events.
Certainly, some at Telecom have a broader overview of events than any investor - or even, in the case of Chorus boss Mark Ratcliffe, running parallel bids for the urban ultrafast broadband tender ( managed by Crown Fibre Holdings) and the Rural Broadband Initiative (managed by the MED), a broader view than any single government agency.
Telecom has offered to split itself into two separately listed companies as a provision of its Crown fibre bid.
Investors not take fright
Mr Hallwright said he did not think any investors would take fright at the move.
"Dividend reinvestment plans are just a convenience for investors who don't want cash dividends, and companies who are cash constrained," he told NBR.
Cash instead
Shareholders who have elected to participate in the dividend reinvestment plan will receive a cash dividend at the same time as dividends are paid to shareholders who do not participate in the dividend reinvestment plan.
The dividend is payable on December 3.
Telecom said when it announced it first quarter result and first quarter dividend on November 5 it expected an imminent announcement in relation to the Government's ultra fast broadband (UFB) initiative, in accordance with Crown Fibre Holdings' (CFH) expected timetable.
Telecom said today that it does not know when the next CFH announcement will be and it does not know the likely outcome of the UFB process.
Due to delays in the announcement it was not prudent to proceed with the issue of shares under its dividend reinvestment plan for the upcoming quarterly dividend, or undertake the associated on-market buyback of Telecom ordinary shares.
Telecom reported a net profit of $103 million in its first quarter, down from $163 million last year. It declared a dividend of 3.5 cents a share, compared with six cents per share last year.
Telecom shares (NZX: TEL) were down 2.54% to $2.11 in early afternoon trading, well off the $2.22 they hit in the wake of Friday's announcement of a joint rural broadband bid with Vodafone.
