Brian Rudman: Whatever way you look at it, a promise has been broken

Despite the ducking and diving for cover of the anti-privatisation majority on the Auckland Energy Consumer Trust, the vote to float 25 per cent of the electricity lines company Vector Ltd was unanimous.

This has been confirmed by Citizens and Ratepayers trustee Mike Buczkowski.

He said the Powerlynk majority, elected on a pledge to keep Vector in 100 per cent community ownership, agreed to vote with the two Citrat trustees following advice from investment bank ABN-Amro Ltd and an independent consultant, Govind Saha of Saha International.

The bankers advised that a partial privatisation was the only way that the $1.5 billion takeover of UnitedNetworks, the country's biggest power distributor, could be prudently funded.

This would be so even after $1 billion was recouped from the on-sale of UnitedNetworks assets in Wellington and elsewhere in the southern half of the North Island.

In addition to the share issue, Vector also has to float between $300 million and $400 million worth of four-year capital bonds. These bonds will carry a preferential entitlement to the share issue and an interest rate of between 7.5 and 8 per cent.

Trustees were advised that without the share float the takeover would have to be financed through bank debt, a move which would have lead to a significant drop in Vector's long-term credit rating, at present BBB+.

This would make borrowing money considerably more expensive for Vector.

In a letter to fellow trustees last Thursday expressing a change of heart and claiming she'd been "conned"into agreeing with the share float, Coralie van Camp said that at the September 11 meeting of the trust, it had been agreed that "wording would be written into the prospectus to the effect that any conversion of capital bonds into shares would be made with the agreement and at the discretion of the AECT trustees".

This sentence suggested that it was still in the trustees' hands to halt the share issue. Mr Buczkowski rejects this. The 25 per cent share float was unanimously agreed to by trustees, including Mrs van Camp, and is, he says, as good as a done deal.

There is a theoretical ability to convert the bonds to shares at the discretion of the trustees. This would have the effect of taking the share float over 25 per cent, but Mr Buczkowski says he does not envisage that "ever happening".

Apparently, if I've got it right, making bonds potentially convertible is a trick of the merchant banker trade, permitting companies to disguise them on the balance sheet as equity rather than debt.

All that's holding things up now is minority shareholder acceptance of Vector's $15 billion offer.

As a condition of the share issue, Vector has agreed to a deed which has two components. The first is a commitment to continue putting power lines underground at a minimum of $10 million a year, subject to the liquidity of the company.

In addition, line charges to existing customers will be kept to present levels, plus any increases in the cost of living index. This will be reviewed after three years.

In an email response, the leader of the anti-privatisation ticket at the last trust elections and present trust chairwoman, Karren Sherry, insists: "It is important to point out that during the election campaign for trustees, some trustees were elected on a platform that there would be no sale of Vector by the AECT. There will be no sale of Vector. No promises will be broken."

We all know that's bunkum. From her own pen, supplied to the Herald before the October 2000 election, was the pledge that "Powerlynk is a team of concerned Aucklanders who will keep 100 per cent ownership ... Only a Powerlynk Trust will keep Vector in community ownership".

What Ms Sherry and her team have agreed to is a sale of Vector shares. Promises have been broken.

Ms Sherry assembles a large list of justifications for what she admits is "a partial float".

"It is financially prudent. Bank debt is expensive and it might not make commercial sense to fund through a bank when more efficient funding is available elsewhere.

"It will ensure the company is able to continue to grow - thus increasing earnings for beneficiaries."

Being listed would ensure the company's management and controlling shareholder "gained the respect of the market through transparent actions".

Listing would "unlock" the company. It would enable New Zealanders to invest in a good local asset.

Finally, she says: "I trust you will agree that the opportunity for us to repatriate significant foreign-owned assets, while enhancing value for our beneficiaries, is not something to be sneezed at."

All the above might be true, but that's not the real issue.

And neither is whether the takeover of UnitedNetworks and the associated financial arrangements is a good or bad deal.

The issue is that less than two years ago a majority of the AECT trustees persuaded us to vote for them by pledging to keep Vector 100 per cent in community ownership.

However much they try to dress up their actions, they have now welched on that contract.