Vector reveals details of bonds and float proposal

By CHRIS DANIELS

Auckland lines company Vector has unveiled details of a capital bonds issue and partial share float.

It wants to raise a maximum of $350 million from the issue, which includes provision for a possible float of up to 24.9 per cent of the company.

Vector is owned by power consumers through a community trust.

Money from the bonds will help to pay for the takeover of neighbouring lines company UnitedNetworks, which will cost about $1.5 billion.

The $1 bonds, which will be listed on the New Zealand Stock Exchange, will be available for a minimum subscription of $5000, with $1000 multiples thereafter.

A priority allocation of $25 million will be offered to existing Vector customers - those with an electricity connection in Auckland City, Manukau City and most of Papakura.

Interest will be set at the higher of 8.25 per cent or 2.2 per cent above the Government stock rate for bonds expiring on December 15, 2006.

The Vector bonds, which are unsecured, are underwritten by ABN Amro Rothschild to the tune of $300 million.

Any bondholder will have the right to invest in a future float of Vector, 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.

If there is no float, the interest rate on the bonds increases by 1.5 per cent.

Whether a float will actually happen is a subject for some conjecture. The bonds prospectus said the company was "working towards" listing, while Vector chairman Michael Stiassny said no "absolute assurance" could be given.

He said no decision on a float had been made. It depended on approval by both the Vector board and the Auckland Energy Consumer Trust.

It was a different board of directors that had developed the prospectus, one that now had three new members, including himself.

When it was put to him that the board's preferred view of a suitable capital structure included a partial float, Stiassny said: "I think that you could say that the board that made that decision has that view.

"The board has changed significantly and does not at this time hold a clear view on this issue.

"The board isn't saying no to a float, it is just saying that it hasn't made a decision and will review it at a time later on."

A majority of the five-member Auckland Energy Consumer Trust campaigned on a strong anti-privatisation platform, saying they would keep Vector in 100 per cent public ownership.

One trust member, Coralie van Camp, has already said she will fight any partial float and that she was conned into agreeing to the float proposal.

Money from the bonds issue and float will be used by Vector to pay off its full takeover attempt for neighbouring UnitedNetworks, offering $9.90 a share. US energy giant Aquila, which owns 70 per cent of the company, is just waiting for final consent from its banks before it accepts the offer.

The central North Island gas network and electricity lines owned by UnitedNetworks will be soldon for about $1 billion.

Vector chairman Patrick Strange said this did not make it a $500 million deal as a lot of existing debt from UnitedNetworks was being taken on, meaning the entire transaction would cost much more.

Dr Strange has, however, said that the entire takeover could be paid for with bank debt.

Trust chairwoman Karen Sherry said yesterday that the raising of money by issue of capital notes represented "a triumph for all beneficiaries of the trust".

Her statement said she was glad the company had arranged "sensible long-term funding options for the transaction - rather than relying on expensive bank debt".