Origin takes A$270m hit on exit

Te Mihi, Contact Energy's newest geothermal power station in Wairakei.

Size of discount a notable factor, says analyst who applauds retention of Contact chief.

Origin Energy will book a A$270 million impairment in the process of exiting its majority shareholding in Contact Energy, the company said in announcing it has completed the sale of the 53.1 per cent stake in the Wellington-headquartered electricity and gas company.

Contact Energy shares resumed trading yesterday morning and closed up 0.8 per cent at $5.06 after being suspended throughout Tuesday's bookbuild, which raised total proceeds of $1.8 billion as Origin quit the controlling stake it had held in Contact since 2003.

The sale, at $4.65 a share, was at a 7.9 per cent discount to the $5.02 closing price for Contact shares on Monday.

Traders are expecting an upward re-rating for the entire electricity sector of perhaps 10 per cent in coming months, now that Origin has removed the overhang created by its long-signalled intention to quit its Contact stake and by the successful conclusion of new electricity contracts for the Tiwai Pt aluminium smelter, which uses one-seventh of all electricity generated in New Zealand.

The size of the discount was a notable factor, said Grant Swanepoel, head of research at Craig's Investment Partners.

"Who would have thought in the last five years that Contact Energy would be offloaded by Origin at a price of $4.65? It's not a desperate price, but it's certainly a willing seller," Swanepoel said.

The retention of Origin secondee Dennis Barnes as chief executive, with Barnes becoming a Contact employee, was a major plus, he said.

Dennis Barnes, who was seconded from Origin, will stay as Contact CEO. Photo / Alan Gibson

"That would have been my one concern - if Dennis went with the sale," Swanepoel said.

Barnes was "probably the number one risk manager in the market".

"He understands how the market works, understands cause and effect. He seems to put the pieces together to move Contact forward under whatever circumstances," he said. "This is a very, very positive outcome."

In its statement to the ASX, Origin said the sale was fully underwritten, with the shares sold to a broad range of New Zealand, Australian and international equity market institutional investors, and New Zealand retail investors.

"Origin Group will receive net cash proceeds of $200 million and approximately A$1.4 billion upon settlement on August 10, 2015, which will be used to redeem $200 million of redeemable preference shares and repay debt," said managing director and departing Contact chairman Grant King. In deconsolidating Contact from its account, "it is expected an impairment charge of approximately A$270 million will be included in Origin's 2015 financial results".

Origin shares closed down 3.6 per cent at A$10.61 yesterday on the ASX.