Contact Energy stake sale talk builds

Sydney-based Origin Energy has this morning sold out of its Contact stake, a move that has long been rumoured. Photo / NZ Herald

Speculation is building that a block sale of ASX-listed Origin Energy's 53 per cent stake in New Zealand's Contact Energy may be imminent.

There are rumours that investment bank Macquarie Capital is handling the deal.

The Australian newspaper reported that there had been talk in the market about the entire stake being sold at $4.50 per Contact share - well below the $5.20 price the stock opened at today.

That would value the stake at around $1.75 billion, compared its market value of roughly $2 billion.

But The Australian also reported that sources close to Macquarie had scotched rumours of the block sale taking place at such a heavy discount.

Origin's bankers have reportedly made approaches to potential buyers in Australia and Hong Kong.

A local market source said Origin might end up selling only half of its stake and, if such a deal takes place, selling restrictions might be placed on its remaining shares to "stabilise the market".

It's understood that Origin would use the proceeds of the sale to reduce its debt levels, which increased after the firm invested billions of dollars in liquid natural gas plants in Queensland that were about to come on stream at the same time as oil prices plunged.

However, uncertainty over the future of Southland's Tiwai Point aluminium smelter means it is a difficult time to get such a deal over the line.

The possible closure the facility, which consumes around 13 per cent of New Zealand electricity, has already been weighing on the share prices of New Zealand power firms.

Contact shares have fallen 15 per cent since early June.

Tiwai's owners, Rio Tinto and Japan's Sumitomo, are expected to give notice early next month about their intentions for the plant.

"I think most investors look at the [the Contact block sale] and say, 'I'm not going to take a problem off your hands this side of Tiwai," the source said.

"Everyone wants to wait and see what happens with Tiwai."

An Origin spokesman told the Business Herald last month that comments chief executive Grant King made at a recent investor day were the firm's current position on the Contact stake.

"It [the stake] is 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 the investor day.