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Tuanz wants multiple inquiries into Chorus' share surge Friday

But there are competing explanations for Friday's spike, and investors have reacted negatively to the EY report. UPDATED: Tuanz better have evidence, Adams says.

Chris Keall
Mon, 16 Dec 2013

The Telecommunications Users Association of New Zealand (Tuanz) says it will will write tomorrow to the New Zealand Stock Exchange (NZX), the Financial Markets Authority (FMA) and the State Services Commission (SSC) asking them to investigate unusual movements in the share price of Chorus.

On Friday, when a report by EY Australia into the financial viability of Chorus was received by the government but not released publicly, shares in Chorus jumped by over 7%, Tuanz says.

Tuanz is a member of the Coalition for Fair Internet Pricing, a group that has lobbied the government to uphold Commerce Commission-mandated cuts to Chorus pricing.

On social media, Coalition spokesman Matthew Hooton went futher than Tuanz, tweeting, that Friday's Chorus shareprice movement was the  "Most obvious example of prima facie #insidertrading you'll ever see."

Adams: better have evidence
ICT Minister Amy Adams reacted sharply to Tuanz' inquiry call.

"As a number of the claims made by Tuanz and the collation during this process have subsequently proven to not be correct, I'm not paying much attention to this one," the minister said late this afternoon.

"If Tuanz has evidence of wrong doing then they should present it and I would hope that they would have before making allegations of this sort."

Alternative explanations
However, there are other explanations for Friday's spike.

On Thursday, Brian Gaynor's influential Milford Asset Management began to load up Chorus, buying 9 million shares. The fund manager told NBR it had judged Chorus had reached a point of maximum uncertainty. Some investors could also have taken heart from ACC's Friday disclosure it had bought 500,000 shares.

Asked if Milford and ACC's vote of confidence could have been the factor behing Friday's surge, Mr Brislen told NBR, "It could well be. We're asking the question given the price movement before the report was released but little movement after."

Investors not seeing the upside
Worse, for Tuanz' insider trading theory, Chorus shares [NZX:CNU] were down 3.06% to $1.42 in late trading. 

If the EY report had an upside for Chorus, investors weren't seeing it.

The report has tough prescription for Chorus, recommending the company cut costs, take on more debt, and slash dividends to get its financial house in order following copper price cuts, and complete the UFB.

But it is still not clear how much of this advice Chorus will take onboard, or to what degree the government will lean on the company to follow EY's recommendations.

Tuanz says a similar trading pattern has been observed other times that Ms Adams has made major announcements, such as when she issued a Discussion Document on pricing for copper broadband and voice services in August.

Suspicious pattern
"Looking at the graphs, it seems when Ms Adams makes a market-sensitive announcement, shares in Chorus move significantly beforehand but not after," Tuanz CEO Brislen says..

"While Tuanz is not making any accusations against anyone, many hundreds of millions of dollars are at stake.  The strange price movements in Chorus shares over the last year merit investigation by the NZX and FMA in order to assure everyone that no insider trading has occurred.

"Given the strange price changes all seem connected with government announcements, it also makes sense for the SSC to investigate the matter, as it did over the leaks about MFAT restructuring.

"Assurances are needed that people who may be privy to forthcoming government announcements are neither trading on that information themselves nor providing it to third parties."

READ ALSO: Analyst looks past EY's tough prescription, upgrades Chorus to buy

Chris Keall
Mon, 16 Dec 2013
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Tuanz wants multiple inquiries into Chorus' share surge Friday