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NZX, the stock exchange operator, is declining comment on a claim by telecommunications lobbyists that there's an emerging pattern of spikes in the Chorus share price ahead of the release of market-sensitive information from the government.
The chief executive of the Telecommunications Users Association of New Zealand, Paul Brislen, cited two incidents, in August and in the last five days, where an imminent announcement from Communications Minister Amy Adams and a price spike in the telecommunications infrastructure provider's shares were linked.
“It seems when Ms Adams makes a market-sensitive announcement, shares in Chorus move significantly beforehand but not after,” said Brislen in a statement.
NZX spokeswoman Kate McLaughlin issued the exchange's standard line for such inquiries: “NZX does not comment on regulatory matters relating to particular issuers.”
Nor has NZX issued a “please explain” notice to Chorus – a move often taken when a company's share price moves substantially for no apparent reason.
However, the Financial Markets suggested an NZX inquiry is under way.
“FMA has received one complaint about the trading of Chorus shares on Friday which we will look into in conjunction with NZX as the frontline regulator of the markets it operates,” the financial markets watchdog said in a statement late today. “We will also respond to TUANZ once we have received their letter.”
Brislen said TUANZ was seeking responses not only from NZX and the FMA, but also the State Services Commission, about the movements in August and last Friday in the Chorus share price.
The most recent example saw the Chorus share price rise by more than 7 percent on Friday, a day ahead of Adams's release of the Ernst & Young Australia report on the extent of Chorus's difficulty in meeting funding requirements for the roll-out of fibre-optic cable for ultra-fast broadband services.
Chorus is contracted to provide UFB infrastructure to 24 out of 33 regions in New Zealand by 2020, but has been claiming that a recent Commerce Commission decision, cutting the price of existing, copper wire-based broadband services more heavily than anticipated, has left a $1 billion shortfall on the project.
The E&Y report suggests that by slashing dividends, borrowing more and implementing cost savings and price increases worth as much as $450 million, that funding gap could be closed to as little as $200 million.
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The report has improved market understanding of the size and scope of Chorus's problems, and led to some optimism it will be able to complete the UFB contracts, albeit with significant medium term commercial pain.
“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 Ltd jumped by over 7 percent,” said Brislen. “Today, after the report was rushed out on Saturday by Amy Adams, the shares have remained broadly stable.
“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,” said Brislen.
“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.”
The SSC might also investigate, given that government officials would have had access to the reports that were published after the share price movements.
Notes on the issue circulated by the Campaign for Fair Internet Pricing, of which TUANZ is a member, query whether there is a case for “prima facie insider trading in Chorus”.
Referring to the Aug. 7 release of a discussion document on pricing for copper broadband, the notes say: “what is
highly suspicious is the trading activity from Friday 2 August through to Tuesday 6 August, which appears to anticipate the release of the discussion document.”
Chorus shares closed on Aug. 1 at $2.70, and jumped 7.4 percent to $2.90 on rising volumes ahead of the document's Aug 7 release.
While that could be a coincidence, “a more likely explanation is that some trader on Friday 2 August, Monday 5 August and Tuesday 6 August had inside information of the contents of the discussion document,” the notes say.
Chorus shares fell 2.7 percent to $1.43 in trading today, having fallen 46.8 percent in the last year.
(BusinessDesk)