As iiNet’s trading halt extends to one month, speculation is mounting about the factors that have taken it off the boards for so long.

With confusion over the source of the Perth-based ISP’s problems and the emergence of corporate adviser Euroz Securities Ltd’s engagement to handle expressions of interest, there is rising expectations that iiNet will emerge with more major news than it has officially offered so far.

Patersons Securities analyst Robert Gee told WA Business News that the length of time the company had been in a trading halt suggested something more than merely confirming a revised earnings before interest tax depreciation and amortisation guidance for the 2006 financial year.

“It all looks like there are issues which are more serious than they lead on, we just don’t know what,” he said.

He said there was speculation in the market that the revised EBITDA may be approximately $25 million, considerably less than the $40 million originally forecast.

“iiNet made a first half EBITDA of $16.4 million, however second half EBITDA could be anything,” he said. “They have given no guidance but they expect second half to be EBITDA positive.”

Mr Gee speculated the company’s failure to keep track of escalating access costs coming from Telstra and costs associated with its call centre expansion may have provided the company with a higher forecast EBITDA for the 2006 financial year than was actually the case.

“When you double or treble the size of your business… it is hard to keep control of it,” he said.

Other sources suggest the possibility that revenue forecasts double-counted customers, a mistake that was covered by a clerical omission of a debt, possibly around $2 million, which offset the sales shortfall when it came to profit and loss.

Such a state of affairs would support the theory of a fast growing business getting beyond the reach of management.

However, iiNet insiders have played this down as simply a disastrous coincidence which should not impact the strength of the underlying business once resolved.

Euroz Securities’ corporate arm has been appointed by iiNet to review various offers ranging from takeover proposals to commercial alliances, with Optus speculated as being interested.

Mr Gee said he had heard of an approach from a WA-based industrial company, however he said he would be surprised if iiNet was forced into a sales position.

Late last week, the company announced chairman Peter Harley (see Newsmaker, page 19) had been appointed to the role of executive chairman for as long as required. The company also appointed GEM Consulting to facilitate a strategic review of the company.

Mr Gee told WA Business News the recent management changes would not affect Michael Malone’s position within iiNet.

“Michael Malone is the spearhead of the company,” he said.

“I don’t think anyone else is there who has the capability of taking on that role and there is a huge amount of respect for him in the business community.”

In last week’s announcement, the company said it believed the process of updating its forecast EBITDA would take a further one to two weeks.

This follows the company initially calling a trading halt on April 18 and advising that it expected to recommence trading late the following week.

On May 1 the company first revealed details of the forecasting and clerical errors that have impacted its 2005-06 results, and said it was likely to resume its place on the boards sometime last week.

iiNet’s share price has lost ground recently, falling from $3.40 in September 2005 to $1.69 prior to the suspension of trading.