Chorus Ltd.

Overview Key strengths Key risks Strong market position as owner of the dominant fixed-line telecommunications wholesale access network in New Zealand. Network volume risks associated with wireless substitution and line loss to local fiber companies. Improved earnings predictability and stability with expected commencement of a new regulatory framework. Organic growth potential limited by household numbers. High capital barriers to competition and strong operating cash flow. Maintenance of legacy copper network and non-mandatory migration to fiber may slow uptake. Track record of leverage management to preserve creditworthiness. In our view, a transparent regulatory regime which transitions the business to having an annual maximum allowable revenue will boost earnings quality. This could lead to Chorus accommodating higher leverage at a given rating

...Chorus' earnings are expected to be more transparent, predictable and stable with the advent of New Zealand's expected regulatory framework. In our view, a transparent regulatory regime which transitions the business to having an annual maximum allowable revenue will boost earnings quality. This could lead to Chorus accommodating higher leverage at a given rating level once the regulatory framework applies to the fiber network from January 2022. Ultimately, the track record of predictability and stability of the regulatory regime in subsequent regulatory price determinations will be an important driver of the financial risk profile parameters...

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