Power company credit ratings safe with partial sale

The partial sell-down of the government's holding in electricity retailers Mighty River Power, Genesis Energy, and Meridian Energy probably won't have any impact on the power companies' credit ratings.

Rating agency Standard & Poor's said if the government proceeds with the flagged asset sale programme, the three power companies'market share and generation capacity mean "there is unlikely to be any effect on the rating uplift of one notch that applies to the ratings on these companies."

The rating uplift the companies have reflects S&P's view of their "important" role to the New Zealand economy.

"The proposed sales and timing are not definitive, and the government is expected to retain majority ownership and control of the three businesses," analysts Richard Creed and Parvathy Iyer said in their note.

"The factors that could affect our view of government support
include: the level of minority shareholding to be sold, the form of sale, the identity of the minority shareholders and the ensuing board composition, and the corporate governance and financial policies of these companies under a revised share ownership."

Last month, Prime Minister John Key indicated the government plans to sell-down its stake in the three electricity retailers, coal miner Solid Energy Ltd. and national carrier Air New Zealand to just over half, in a bid to free up some $7.8 billion of cash tied up in the companies and repay some of the country's borrowing programme.

The government was forced to ramp up debt in response to the global financial crisis, and faced a $15 billion cash deficit in the 2011 financial year alone.

Though the sale of state assets won't cover the rising bill, the Savings Working Group last week said in its final report the initiative will tell the market New Zealand is facing up to its debt problem.

While government debt is low by OECD standards, private foreign debt is worryingly high, and prompted the government to ask for independent advice on how to address the issue.

The government is also justifying the partial sales policy on the grounds that they will offer solid, new sources of equity investment for New Zealand investors, who are starved of such opportunities, according to a report from the bi-partisan Capital Markets Development Taskforce.