Cash-strapped Edison on fund-finding mission

By CHRIS DANIELS and PAUL PANCKHURST

Looming debt repayments and credit rating downgrades for US energy giant Edison Mission have re-ignited speculation that it may seek to cash in on Contact Energy's soaring share price, and sell its 51 per cent stake.

With Contact shares currently rising in value and worth $4.83 each, a sale could net Edison Mission $1.4 billion to help pay off debt.

Such a deal would also capitalise on recent gains in the value of the New Zealand dollar against the greenback.

A news agency report of Edison International chairman John Bryson's speech to shareholders last month recorded his warnings about imposing future debt payments.

Hurt by a collapse of investor confidence in energy merchants, Edison Mission had US$911 million in debt due late this year and a further US$1.5 billion due late next year, he said.

"For EME to survive and prosper, it's vital we restructure its debt on terms that support shareholder value," said Bryson.

The warning came a day after EME's debt was downgraded two notches by Moody's Investors Service - putting it deeper into junk bond territory.

The Standard & Poor's agency rates Edison Mission as a BB minus: Also "junk" or "sub investment" grade, with a negative outlook.

One investment banker told the Business Herald brokers had been trying on a speculative basis to match Edison with a buyer for the stake.

He said hedge funds from overseas - the players who try to turn quick profits from major corporate moves - had been inquiring whether something was up with Contact.

However, he said, market speculation on the possibility of a sell-out was nothing new.

A possible new selling point for any seller of Contact shares would be the largely positive response to recent Government changes in the electricity sector.

Fears of wholesale re-nationalisation of the wholesale electricity market proved groundless, and some believe Contact, with its collection of thermal power stations, could stand to profit from the Government's intention to contract for reserve, dry year generation capacity.

Edison Mission has investments in power stations around the world, including Indonesia, Australia, Britain, Italy and Turkey. It launched a $1.34 billion takeover offer for the remaining 49 per cent of Contact in 2001, which failed after shareholders rejected the offer price of $4.14 a share.

Contact's independent directors advised shareholders to accept the offer, saying they believed the share price was likely to fall.

Chairman Phil Pryke said that the directors acknowledged "there is some possibility retaining the shares might produce a higher value outcome for shareholders over the longer term."

Contact's share price has since increased in value by more than 20 per cent.