Spin-off speculation for iiNet NZ assets

The spin-off of New Zealand ISP ihug is being viewed as a strong possibility for its Perth-based owner iiNet, which has laboured under a five-week trading halt following discrepancies in its financial reporting.

With the trading halt set to be lifted this week (but remaining when WA Business News went to press), there has been mounting speculation that a partial float of the ihug business could be a key result following a strategic review of the company.

The suggestion from those in the market is that the New Zealand business could be worth around $30 million, based on its $6 million EBIT contribution to the group.

A sale, in which iiNet might retain an interest, would allow the company to focus on the Australian operations.

This is considered particularly pertinent to market watchers given the significant regulatory change taking place in New Zealand, which is expected to provide new growth opportunities for ihug, currently run by Auckland-based executive Mark Rushworth.

Mr Rushworth confirmed to WA Business News that New Zealand’s regulatory regime was moving closer to Australia’s, with local loop unbundling (allowing all operators to access the customer connections controlled by an incumbent provider) being the latest change set to alter the market there.

However, Mr Rushworth said he was unaware of any proposal to cut ihug loose, other than general speculation in the first few days of the trading halt in mid-April when iiNet’s financial reporting issues had not been announced.

Both started from humble beginnings in the garages of their respective founders; ihug cost iiNet $30.1 million dollars in cash and a further 23.7 million shares in iiNet in October 2003. Both companies had significant business in the eastern states of Australia.

iiNet founder and managing director Michael Malone would not comment on the proposal or speculation that he supported the spin-off of ihug’s New Zealand operations as a stand-alone entity.

He denied there was any imminent announcement on the subject.

Macquarie Bank telecommuni-cations analyst Tim Smart said a sale or sell-down of ihug would be positive under the circumstances, but only if the right price could be gained.

“I would make the observation that the scale of the issues challenging management in Australia may make it more sensible for that New Zealand business to be New Zealand-focused only,” Mr Smart said.

“That is premised on there being a natural buyer.”

A spokesman for corporate advisors Grant Samuel in Auckland was unable to confirm if the firm had been appointed to look at floating ihug.