Brokers pour doubt on powerco excuses

By Mark Reynolds and Richard Braddell

Takapuna-based electricity lines company UnitedNetworks has scrapped plans to raise $78 million by selling shares to institutional investors.

UnitedNetworks chief executive Don Bacon contended weakness in global equity markets had scuppered the offer. But investment brokers suggested the planned salewas simply not enticing enough for the large investors like banks, superannuation funds and insurance companies.

The proposed placement was small and there was scepticism about UnitedNetwork's announced reasons for the issue, brokers said.

UnitedNetworks - formerly called Power New Zealand - had said the offer would triple the amount of freely traded stock in the tightly held company. That extra liquidity would enhance the market's ability to value the shares, Mr Bacon said just a week ago when the offer was announced.

But brokers yesterday said that the proposed placement was not going to be large enough to make a significant difference in the way they viewed the company.

"The weak state of the markets is only half of the story at best," said Paul Richardson of investment bank Warburg Dillon Read. "Institutions weren't that interested in the offer because it was small and wasn't going to substantially change the state of the company," he said.

There were concerns that the exercise was simply a way for the company's main shareholder, Utilicorp of the United States, to strip some cash from investors.

UnitedNetworks had said the cash would be used to repay debt, but that would, in itself, free up other money for dividend payments by the company.

United had intended to issue 12.6 million shares at 625c each. That would have represented a 15c discount to the 640c price the stock has been stuck on for many months.

About 79 per cent of United is owned by Utilicorp, with a further 11 per cent tied up through the Power New Zealand Shareholders' Society.

Just 1 per cent is held by institutional investors.

One institutional investor, who did not want to be identified, said there was regulatory risk with UnitedNetworks, with the outlook for line company laws uncertain following the failure of the National-led coalition Government to introduce price controls earlier this year.

"I wouldn't say the door is shut on further investment in UnitedNetworks, but if they are looking for extra capital, they would need to show they want it for some growth, like the acquisition of another business.

"The small issue they planned simply raised suspicion about why they wanted the cash," he said.

Mr Bacon said the reason for cancelling the offer was simply that it would have hit a local market which this week gave the Tower listing a lacklustre reception and was readying itself for the $800 million Westpac New Zealand share issue.

Mr Bacon said that while he had watched the Tower listing from afar, "I am certainly disappointed that we couldn't have picked a worse time to go to the market. The instability of the world markets has sort of spooked everybody."