Trustpower spin-off makes sense, says analyst

Trustpower's Snowtown development in South Australia.

The de-merger proposal, announced by Trustpower last week, has been described by a senior energy analyst as a sensible approach with advantages for the company.

The proposal would result in the most significant change for the Bay of Plenty powerco since it came into existence as a listed company after its transformation from the Tauranga Electric Power Board more than two decades ago.

The board plans to spin off its wind power assets, and wind and solar pipeline into a separate listed company, leaving the New Zealand generation and retail assets in a core listed company.

"It looks like a reasonably sensible proposal," said Andrew Harvey-Green, a senior Forsyth Barr equity analyst who specialises in the energy sector.

"There are a couple of advantages. One, they will have a couple of 'pure-play' [solely renewable energy] vehicles so that investors can choose what kind of exposure they want. And the other thing - as we have seen in the marketplace recently - is that pure-play wind producers in Australia have been attracting fairly good multiples. So there is a suggestion Trustpower may be able to unlock a little bit of value by doing this as well."

The proposal requires shareholder approval and would be achieved via a court-approved scheme of arrangement. But it has already received the endorsement of majority stakeholder Infratil, which owns 50.6 per cent of the electricity generator and retailer. TECT, which holds 26.8 per cent of Trustpower, has also supported the proposal.

Infratil has confirmed if the de-merger is approved it intends to maintain its current holding and support the future capital requirements of both vehicles.

"The scale of the development opportunities in Australia requires a focused vehicle with capacity to raise future capital on an efficient basis," said Infratil chief executive Marko Bogoievski.

"We are positive about the outlook for renewable opportunities available to Trustpower and believe it is important to structure the business to take advantage of these."

More details of the proposal will be available to Trustpower shareholders by the end of February 2016.

Trustpower chief executive Vince Hawksworth said a lot of work had been done in the past six months to come to the conclusion the split was the best way to allow capital raising to develop its wind farm pipeline.

"The market will have a view and there is a whole process to be worked through in the next few months."

Mr Harvey-Green said that the improving climate for renewable energy in Australia - where Trustpower is a leading wind power generator - was a factor.

In June, the Australian Government re-set its Renewable Energy Target from the previously legislated 41,000GWh to 33,000GWh. The deal followed 15 months of lost investment confidence caused by the review of the policy.

While it was set at a lower level, the new legislation removed two-year reviews of the RET and the agreement was seen as unlocking the way to new investment. Tony Abbott's recent replacement by Malcolm Turnbull as Prime Minister was also seen as a positive for the Australian renewable sector.