Lines firm tipped for offloading

By CHRIS DANIELS energy writer

The lion's share of UnitedNetworks may soon be up for sale, as reports of an American withdrawal from energy assets circulate across the Tasman.

The Australian Financial Review reports that US energy giant Aquila (formerly UtiliCorp) has appointed investment banker Salomon Smith Barney to advise on the sale of its New Zealand and Australian assets, which include a 70 per cent share of UnitedNetworks, New Zealand's biggest lines company.

Aquila last week announced a 40 per cent fall in earnings for the first quarter and said it was considering selling assets worth US$500 million ($1.1 billion).

Based on current market capitalisation, its share of UnitedNetworks is worth $852 million.

One energy analyst said UnitedNetworks, as a well-run company, would be an attractive takeover target should such a large stake become available.

"It's an attractive asset, the largest lines company in New Zealand. We're getting increasing certainty in the regulatory environment, [so] it's a pretty saleable asset."

Any takeover of UnitedNetworks would bring about a reduction in the number of power lines companies. There are 29 across New Zealand. Many of those are tiny, trust-owned firms in small rural areas.

The four largest, UnitedNetworks, Vector, Orion New Zealand and Powerco, account for 62 per cent of all electricity connections.

Many in the energy industry, including retailers, argue that there are too many lines companies for a country this size.

The Australian Financial Review said AMP, which, with Aquila, owns large stakes in two Australian energy companies, United Energy and Multinet, was in the best position to buy the Aquila assets.

Aquila has $2.3 billion of assets in Australian and New Zealand electricity and gas companies.

The Australian Financial Review said AMP had the first right to buy Aquila's stakes in those two companies and could buy the other assets for inclusion in a publicly traded energy fund.

AMP has no such large stake in UnitedNetworks, though, and a spokeswoman for AMP Henderson in Sydney referred to the report of asset sales as "market speculation".

UnitedNetworks chief financial officer Ian Hadwin said the company had no knowledge of any discussions between Aquila and AMP.

UnitedNetworks chairman Keith Stamm told shareholders at last month's annual shareholders' meeting that Aquila had no plans for another selldown of its shares.

In April last year, Aquila cut its stake from 78.8 per cent to 70.2 per cent in an attempt to raise liquidity and thus the value of UnitedNetworks shares.

UnitedNetworks also supplies gas to more than half of all gas users and has a fledgling broadband communications network, comprising two fibre-optic systems in the Wellington and Auckland central business districts.

It made $120.8 million last year, compared with $109.3 million for 2000, and paid an annual dividend of 35c.