Sydney-based Origin Energy has this morning sold out of its Contact stake, a move that has long been rumoured. Photo / NZ Herald
Sydney-based Origin Energy has this morning sold out of its Contact stake, a move that has long been rumoured. Photo / NZ Herald
Majority owner Origin explores disposing of its 53% stake in electricity generator.
Contact Energy's 70,000 shareholders will get a 50c-a-share special dividend tomorrow as its majority owner examines options to quit its stake in the company.
The fully imputed dividend will return $367 million to shareholders, including majority owner Origin Energy, which has reportedly hired corporate advisory firm Luminis Partners to work through sale options.
Sydney-based Origin would not comment on reports of the Luminis appointment but has told investors it does not regard its 53 per cent stake in Contact as a core business.
An Origin spokesman said comments that chief executive Grant King made at an investor day were the current position.
"It's [Contact's] valuable to us but if it's more valuable to someone else and we felt we could deploy the capital more effectively somewhere else, we'd do so," King told the Australian Financial Review at an investor day this month.
"That is different from what we've said previously where it played a very important role in supporting the credit rating of the company, that role is now less important."
Forsyth Barr analyst Andrew Harvey-Green said the shares could be sold on the market to fund managers and brokers' clients or a trade sale.
"Or they could do nothing," Harvey-Green said.
Director of Salt Investment Funds Matt Goodson said the key for Origin was retaining its BBB- stable credit rating.
"One more move down would put them into junk and no way would they want to go there. They are very much committed to that investment-grade credit rating," Goodson said.
Origin was heavily in debt after investing billions of dollars in LNG plants in Queensland which were about to come on stream at the same time as the oil price has plunged.
One more move down would put them into junk and no way would they want to go there. They are very much committed to that investment-grade credit rating.
Goodson said that every A$10 movement in the price of oil equated to a A$200 million ($225 million) movement in earnings for Origin.
"It's hugely sensitive, on some oil price scenarios Origin is very cheap but on others the balance sheet will get very squeezed."
At Contact's present share price, Origin's stake is worth just over $2 billion.
Selling on the open market would be the worst-case scenario for Origin, said Goodson.
"I'd have thought that would be a last resort. It would be a massive amount of stock to sell on the market."
In the current low interest rate environment, there were trade buyers looking for a home for funds and this would be a better outcome for shareholders.
"If you want to maximise your profit you look at a corporate buyer, particularly at the moment when you can't get a return on fixed interest."
He said if it was sold on the market Contact was likely to be listed also on the Australian ASX.
Contact shares closed at $5.20 on Friday and have traded as high as $7.30 in the past 12 months.
