Prime offers little assurance on Powerco deal

1.00pm - By ADAM BENNETT

Prime Infrastructure this morning did little to indicate the New Plymouth District Council's lock-in agreement for payment for its stake in lines company Powerco will hold water.

New Plymouth District Council (NPDC), Taranaki Energy Trust (TET) and Powerco Wanganui Trust (PWT), have agreed to sell their combined 53.65 per cent stake in Powerco to Australia's Prime at $2.15 a share. They say they have a "'watertight" agreement with Prime that they will be paid 62.5 per cent in cash with the rest in unrated unsecured bonds.

However a wave of selling by other local shareholders to overseas investors who can be paid all in cash means Prime's offer to local investors, including the local bodies, is likely to be less cash and more bonds.

Prime chief executive Chris Chapman, who met with New Plymouth Mayor Peter Tennent yesterday to shore up the deal, told NZPA this morning the final ratio of cash and securities "all shareholders", including the local bodies, would receive would "require a consideration of the number of people accepting 100 per cent Sparcs (subordinated prime adjusting rest convertible security).

He said commentators were jumping to conclusions about the outcome.

"People are making premature assessments because it will depend on the final mix of the number of shareholders accepting and the number of shareholders who elect to take 100 per cent Sparcs."

But Mr Tennent said yesterday following his discussion with Mr Chapman that he remained convinced the council would get its promised cash payment, and that it had watertight legal agreements to that effect.

But independent analyst and commentator Brian Gaynor said Mr Tennent was wrong.

"There is a side letter in which the council agreed to the scaling down approach," he told National Radio this morning.

Mr Gaynor said the letter had been read to him by someone who was close to the scene and had the documents in front of him.

"From what we're hearing and certainly from the way the market is responding, because you wouldn't get the volume of shares trading if the council was going to get the deal that it once thought it was going to get - the clear implication is I'm afraid in this particular situation that the Mayor is wrong."



An unprecedented number of Powerco shares have been sold overseas by New Zealand shareholders since September 9 when the Takeovers Panel ruled foreign investors would be paid cash while locals would receive part cash and part bonds. About 131 million of the 147m shares not owned by the three councils -- nearly 90 per cent -- have traded.

Mr Gaynor said the Takeovers Panel ruling was "a major mistake".

"The panel does have to take some criticism for giving an exemption when it shouldn't have given it."

Prime had applied for the exemption to avoid the cost of producing a prospectus for the bond issue for overseas investors, who at the time held just 0.3 per cent of the company.

Given the number of Powerco shares traded in recent days, Mr Gaynor said it was likely the councils would end up with 62.5 per cent of the purchase price in "difficult-to-sell" bonds and the balance in cash.

While the councils may be able to back out of the deal that would involve "a legal bunfight".

Yesterday New Zealand First leader Winston Peters said the deal stank.

"The people of Taranaki, who owned the majority shareholding through the council and trust, could end up with a pile of IOUs and payment on the never-never," he said in a statement.

"This is an appalling situation and in their haste to flog off a valuable locally-owned asset, the New Plymouth District Council and Taranaki Energy Trust have let local people down very badly."

Powerco shares were 2c lower at $2.08 in the first half hour of trade on the NZX today on turnover of $8.9m.

- NZPA