Powerco directors rebuff bonds

By CHRIS DANIELS

Prime Infrastructure's foray into New Zealand is turning increasingly sour.

Powerco shareholders have been told to reject its bonds as payment for their shares.

The Australian investment fund is making a full takeover bid for the New Plymouth power lines and gas network company, offering to pay for the $680 million deal in a mix of cash and bonds.

The New Plymouth District Council and two Taranaki community trusts, owners of 53.6 per cent of Powerco, have accepted the deal.

But yesterday, Powerco's independent directors published their advice to shareholders, with an assessment of the offer from valuer Grant Samuel.

The company is advising its shareholders to shift their shares to an overseas address to avoid having to take bonds in part-payment.

Despite the criticism, Prime says it is well on the way to 90 per cent acceptance of its takeover offer, which closes on November 2.

Powerco chairman Barry Upson said that, while the $2.15-a-share price being offered was attractive, local shareholders were being disadvantaged to the benefit of those overseas.

Even if they ask to be paid all in cash, Powerco's New Zealand shareholders are likely to have their cash payment scaled down and the balance paid in Prime's corporate bonds which may be worth less than $2.15.

These bonds have caused headaches for Prime.

Called Sparcs (subordinated prime adjusting reset convertible security), they pay an interest rate of 8.5 per cent.

Critics say Powerco shareholders are effectively being asked to lend their money to Prime so it can buy their shares from them.

Yesterday's Grant Samuel report casts a wary eye over the Sparcs.

"The likely market value of the Sparcs is difficult to determine," it says.

"The fact that Prime Infrastructure did not adopt the more conventional approach of making a separate underwritten issue of the securities may suggest that no institution was willing to underwrite the issue and there was uncertainty as to the underlying value of the Sparcs."

It was likely they would trade at a substantial discount, particularly if there was a large number of sellers.

For Powerco's bondholders, the Grant Samuel verdict is even more damning.

It says the the Prime offer is unfair because it offers to pay bondholders entirely in Sparcs, which Grant Samuel says are "an inferior security to the Powerco capital bonds".

Prime is not compensating Powerco bondholders for a November interest payment they will lose if they are given Sparcs.

"Effectively, factoring in the loss of the accrued interest, capital bondholders are being offered a consideration valued at 89c to 95c for each $1.02 of principal and accrued interest," says the Grant Samuel report.

Last month the Takeovers Panel gave Prime a waiver allowing it to pay overseas shareholders entirely in cash. This prompted many shareholders to register their shares in overseas addresses.

Direct Broking director David Speight said he was advising clients with Powerco shares to transfer ownership to an overseas address and ask for cash.

"Failing that, sell the shares on the market," he said.

Getting $2.12 or $2.13 on the open market was certainly better than getting "some cash, some Sparcs".

But Speight said the Grant Samuel verdict on the Sparcs was "a bit harsh", since there was market interest in buying them.

Anyone wanting to change the address on their shares or bonds could do so at a local broker for a fee of between $50 and $100.

The shares and bonds will be listed as owned by the same person, but at a different address.

* Powerco yesterday announced a half-year, after-tax profit of $37 million for the six months to September.

This is up from $30.7 million for the same period last year and includes an extra $4.2 million from its businesses in Australia.


Directors' directive

For those holding fewer than 1100 shares - accept the Prime offer, but ask for cash only.

For those with more than 1100 shares - change the address at which the shares are held to one outside New Zealand, such as care of a friend or family in Australia. Then accept the offer, asking to be paid in cash.

Bondholders: Reject the offer and change the address at which the shares are held to one outside New Zealand or Britain.