KEY POINTS:
Origin Energy, Contact's 51.4 per cent owner, is confident its $200 million preference share issue launched yesterday will be fully subscribed despite the credit market turmoil that has recently seen similar offerings downsized.
Under the offer to New Zealand investors Origin can accept a further $50 million in oversubscriptions.
Origin Energy managing director Grant King said the funds raised would replace bank debt which was in turn obtained a year ago to cover the maturity of $250 million worth of redeemable preference shares issued five years earlier by Edison Mission from whom Origin bought its Contact stake.
While technically an equity instrument, the preference shares performed more like debt, said King who along with group treasurer Peter Rice was in the country yesterday presenting the offer to brokers.
Origin's timing is far from perfect - a $300 million debt issue by Yellow Pages Group announced last month has since been scaled back to between $100 million and $150 million amid concerns the global credit crunch had dented investor appetite for risk.
While King said it was "unfortunate the market turned the way it did", he was confident of success.
"There's already a substantial amount of what we would call broker firm interest and off the back of that we are comfortable that we should achieve our target of $200 million. I wouldn't like to make a call in relation to oversubscriptions."
Rice said the company had "binding bids from brokers" of approximately $162 million already.
"Origin and Contact are invested in the energy business and whilst there is a degree of volatility in debt and equity markets, our businesses remain remarkably stable and robust. We feel quite confident that bringing this product to investors they'll be able to see that," said King.
Prospectuses and other offer documents will be available to the public later this week. The shares will pay a fixed dividend which will initially be set at either 10 per cent per annum or 1.5 percentage points above the benchmark one year swap rate whichever is higher.
The shares rank behind Origin's other debt but ahead of ordinary equity. They will be listed on the NZDX debt market and have been rated at BBB- by Standard & Poor's and BBB by Fitch.
King said Origin would not be presenting another merger proposal to Contact's shareholders after its offer last year met with opposition. "The circumstances under which we brought that proposal to market have passed. There is absolutely no current intention of bringing any such proposal back to the market at any time."
