Vector likely to axe listing plan

By CHRIS DANIELS

Vector's plans to partially privatise and list on the Stock Exchange are doomed, with its board preparing to abandon a scheme to float 24.9 per cent of the company.

The biggest of the New Zealand's monopoly lines companies, Vector is owned by its customers through the elected Auckland Energy Consumer Trust.

A meeting of Vector directors on Thursday is expected to axe the float, but chairman Michael Stiassny said yesterday the decision couldn't be made while the shape of industry regulation was unresolved.



"There can be no doubt that the current situation with the Commerce Commission is something you would expect the board to take into account and we are taking that very seriously."

It would be unwise, said Stiassny, to make any decision on a float until the board had a clear view on where the Commerce Commission was heading with its regulatory plans.

"We are not enthusiastic about the total package we have seen today."

The prospect of a partial float was first raised in September, when Vector raised $307 million through a bond issue, primarily to help pay for its $1.5 billion purchase of UnitedNetworks.

It agreed to raise the interest rate on the bonds from 8.25 per cent to 9.75 per cent if it did not float 24.9 per cent of the company within 12 months.

Bondholders were also given the right to invest in any future float, with every dollar of capital notes giving the bondholder the right to get 50c worth of Vector shares at a 2.5 per cent discount to the offer price.

But even at the first announcement of a possible float, Vector's board seemed unclear on whether they wanted to proceed with it.

Though saying in the prospectus that the company was "working towards" such a float and Stock Exchange listing, Stiassny said no commitment had been made.

Political fallout quickly followed the announcement, since three of the five trust members had been elected on a staunch no-privatisation platform.

Any float was, however, expected to be popular with investors, with Vector's monopoly earnings potential and quality management offering investors an Auckland International Airport-style blue-chip investment.

It would have also provided one of the biggest public offerings of the year - also boosting the New Zealand Stock Exchange, which is eager to promote new listings.

One sharemarket analyst said the impending threat of Commerce Commission regulation had already dampened investors' enthusiasm for a Vector float.

The risk of regulation having a significant impact on Vector has risen considerably since it took over UnitedNetworks late last year.

In the latest compendium of power lines companies issued by PricewaterhouseCoopers, UnitedNetworks is listed as having the second highest return on investment of New Zealand's 29 networks.

It made a 13 per cent return on investment, compared to Vector's 7.4 per cent.

In its latest draft decision on regulating the monopolies, the commission proposed a "profit path threshold".

Under this plan, it would scrutinise rates of return in five years, possibly imposing price controls on companies that earned what it considered excessive returns.

It suggested allowing a return of 6 to 8 per cent before a lines company would risk breaching any threshold.

Political intrigue between the Vector board and members of the Auckland Energy Consumer Trust has also made it difficult for bondholders to know if they will be able to buy shares in Vector.

Former chief executive Patrick Strange was reported to have supported a partial float, but he lost his job last year after successfully leading the company in its purchase of UnitedNetworks.

His replacement Mark Franklin, who has been in the job just over a week, comes from the Australian electricity industry, but worked in New Zealand in the 1990s.