Heather du Plessis-Allan Drive •

Peter Griffin: Sky plans on entering the broadband market

Heather du Plessis-Allan Drive

Sky is issuing cheap shares to beat its cash-crunch, plans to enter the broadband market and is mulling a move into mobile phone plans.
The pay-TV provider is raising $157 million with a deeply discounted rights issue. New shares will be 12c - a 63.6 per cent discount on Wednesday's closing price of 33c.
Despite recovering from an all-time low of 19c on March 23, the stock is still down 73 per cent for the year.
Shares were in a trading halt ahead of the announcement and will remain suspended until the placement is filled.
Sky also said it would offer broadband from next year to "reward customer loyalty".
"Sky will then focus on the hundreds of thousands of New Zealand homes that are fibre ready through the ultra-fast broadband scheme but not yet connected," chief executive Martin Stewart said.
Sky could use broadband as a loss-leader to bring more people onto its pay-TV or streaming plans, or upsell them to more expensive deals - just as Spark now uses its sports streaming service as a loss-leader to spruik its broadband.
In an investor presentation, Sky said it will partner with an as-yet unnamed existing provider to minimise the cost of the new service. There was no immediate word if that would be UFB wholesaler Chorus or a retail provider.
Sky also said it was considering a move into the mobile service as a MVNO - or mobile virtual network operator, which would imply that it would sell a rebadged version of Spark, Vodafone or 2degrees' service. Any such move would happen when 5G rollouts had progressed further.
There have been rumours of Sky launching its own broadband service - to hit back at Spark on its own turf - since February. Stewart did nothing to squelch them as he told the Herald that UFB fibre wholesaler Chorus could be a "fantastic" partner.
Sky also said today that a $200m banking facility, which had been set to shrink to $150m by July next year has now been extended to July 2023, conditional on the equity raising.
Analysts have been tipping the likelihood of a capital raise, even before the Covid-19 crisis cleared Sky's sports calendar.
In a March note to investors, Jarden questioned if Sky is generating enough cash to support the business and said it may struggle to access additional finance as its $200m bank facility, which is already drawn to $90m, shrinks to $150m in July 2021.
But Sky also said today that the banking facility has now been extended to July 2023, conditional on the equity raising.
The yield on a $100m bond set to mature in May next year has been spiking sharply.
Sky said today that proceeds of the $157m capital raise will initially be applied to pay down debt.
The $0.12 per share-placement offer will comprise of a fully underwritten $9m institutional placement and fully underwritten $148m pro-rata nonrenounceable accelerated entitlement offer, at a ratio of 2.83 for 1. The underwriters are Goldman Sachs and Forsyth Barr.
Revised guidance
Sky also offered a carrot to investors this morning, saying its board would assess the possible commencement of dividends in 2022.
In March, the company cancelled its earlier guidance for June-year revenue of $750m to $770m and earnings before interest, tax, depreciation and amortisation between $170m and $190m.
It now expects revenue of $730m to $750m and ebitda of $155m to $175m in the year ended June 30. For the following year, revenue could fall to $610m to $640m and earnings to $100m to $130m.
Sky noted that its customer numbers, including Lightbox (which it wholesales back to previous owner Spark on a bulk basis), exceeded one million at April 30, and that viewership during the lockdown month of April was about 10 per cent higher than the year before.
Streaming customers had increased by about 8.6 per cent since mid-March, but satellite subscriptions fell by 1 per cent because of the inability to connect new customers.
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