Vector and NGC put on negative ratings by S&P

Standard & Poor's said today it was putting Auckland energy company Vector and NGC Holdings on creditwatch with negative implications following Vector's announcement of a full NGC takeover bid yesterday.

Vector yesterday made a $3.40 per shares scrip and cash offer for the remaining 32.8 per cent of NGC it does not already own ahead of the float of a quarter of its shares that will raise $593 million.

NGC shareholders will be offered 78c cash and the rest in new Vector shares.

S&P said if the IPO and acquisition proceeded under the terms and conditions expected, then the ratings on Vector and NGC were likely to be affirmed at BBB-plus with a negative outlook.

"The potential negative outlook reflects the likely deterioration in financial metrics over the short to medium term," S&P said.

A major part of the decision to affirm the rating will be an assumption that Vector repays its equity bridge, either from its IPO proceeds or other means, before the end of October 2005, the international rating agency said.

S&P said Vector's rating reflected the company's low-risk electricity network business, the scale and diversity of its operations, its robust service area, and current regulatory price-path certainty.

"In addition, Vector is expected to benefit from the broadening of its business profile that results from assuming full control over NGC's gas businesses, including its transmission and distribution business.

"These strengths are offset Vector's moderate financial profile, uncertainty regarding the level of Vector's final shareholding in NGC, and consequently the extent of the integration that will ultimately occur and the associated integration risks."

NGC's rating reflected its strong market position in gas transmission and distribution, its diversified revenue base, and its moderate financial profile as well as Vector's creditworthiness.

"These strengths are mitigated by New Zealand's depleting long-term gas reserves and any implications arising from the current regulatory review of gas transportation," S&P said.

Vector expects to be listed on the exchange in the spring with a capitalisation of up to $2.38 billion.

NGC shares jumped 22c to $3.72 yesterday and rose another 3c to $3.75 today -- well above the implied takeover price.

Last year, valuers Grant Samuel said the underlying value of NGC shares was in the $2.50 to $2.76 range.

- NZPA