Origin sell-down boon for Kiwis

Hydro generation makes up part of Contact's diverse portfolio.

Contact Energy will have more New Zealand shareholders on its register after Australia's Origin Energy sold its controlling stake for $1.8 billion.

In what was the biggest deal since the Government's $733 million partial privatisation of Genesis Energy in April last year, Origin said it had sold its 53 per cent stake to underwriters Macquarie Capital at $4.65 a share - a 7.4 per cent discount to its last traded price of $5.02 a share before the stock went on a trading halt.

Contact, one of New Zealand's biggest listed companies, supplies about 22 per cent of the retail market from a diversified portfolio of hydro, geothermal and gas-fired generation assets.

The deal ends months of speculation that Origin, which has been involved in Contact for 11 years, intended to exit. Together with Monday's news that the power hungry NZ Aluminium Smelters and Meridian Energy had successfully re-negotiated a new supply agreement, Origin's sale removes significant uncertainty for the sector as a whole.

Fund managers do not expect to see a shortage of demand for Contact stock in the current yield-hungry environment.

Harbour Asset Management analyst Craig Stent said the deal looks likely to remove a stock overhang allowing the market, post Tiwai Pt, to proceed with certainty.

"The market has been expecting it for a few months, so now the focus is shifting back to the company's fundamentals," he said.

Analysts expected the stock to be keenly sought by local and overseas infrastructure funds, pension funds, KiwiSaver funds and private investors seeking long-life assets with good cash flow.

"Clearly, retail investors will be participating in the deal as well, through the brokers," he said.

Mark Lister, head of private wealth research at Craigs Investment Partners, expected the market to easily digest the $1.8 billion worth of stock.

"The market will easily swallow it because it is exactly the kind of stock that the market is looking for in this low-interest-rate, declining-economic-growth environment," he said. "Let's hope that when the dust settles, there's a strong influence from the New Zealand side of the ledger as well."

Origin, which has invested heavily in Queensland liquefied natural gas plants, said it would use the proceeds to pay back debt and redeem $200 million in preference shares. Macquarie is expected to have the stake onsold by today.

The timing of yesterday's announcement was most likely connected to Monday's news from NZAS. Doubts about the future of its Tiwai Pt smelter had been hanging over all the New Zealand generators because a decision to shut the smelter would depress wholesale power prices and affect the profitability of them all.

Contact, which will report its June year result on August 17, said it expects its earnings before interest, tax, depreciation, amortisation and financial instruments to be about $525 million, down from $587 million a year earlier. It expected its underlying earnings after tax to be about $161 million from $227 million a year earlier.

The company said it would support increased distributions to shareholders and as a result has revised its distribution policy to target an average ordinary dividend equivalent to about 100 per cent of underlying earnings after tax from 80 per cent previously. The board said it would also seek to list Contact shares on the ASX within four to six weeks.

Contact shares were in a trading halt while the transaction took place.