The potential sale of a majority stake in North Island electricity distributor Powerco is an interesting proposition and one that is likely to attract plenty of interest - including possibly from the NZ Super Fund.
Queensland Investment Corporation (QIC), which manages funds that own 58 per cent of Powerco, is reported to have hired investment bank Barrenjoey to review its shareholding.
The remaining 42 per cent is held by funds managed by Dexus, which inherited the stake via its acquisition of AMP Capital’s real assets unit last year.
While the review is said to be at an early stage, the Australian Financial Review reported speculation that Barrenjoey was expected to advise QIC on a potential exit from Powerco after 15 years of ownership.
Powerco is the second-largest electricity distributor in New Zealand, supplying electricity to over 340,000 homes and businesses in the North Island. Its network covers Coromandel, South Waikato, Bay of Plenty, Taranaki, Whanganui, Manawatu, and Wairarapa. A transaction could value the company at up to $3.5 billion, according to a Bloomberg report.
Powerco has been a solid investment for QIC, which bought its stake from Babcock & Brown Infrastructure for $423 million in 2008.
Stock Takes understands there was some local disappointment at the time that the NZ Super Fund did not try to contest QIC’s bid for the 58 per cent, given its mandate to invest in local infrastructure.
Asked to comment on the asset and whether the state-owned fund could be interested this time around, a spokesman was unable to say.
“We don’t comment on our intentions regarding potential investment opportunities.”
Powerco recorded revenue of $512.8m for the year to March 2023, up 7.8 per cent on the $475.4m in FY2022.
Earnings before finance costs, loss on disposal, taxation, depreciation, amortisation and financial instruments (ebitdaf) was $263.5m with net profit of $24.1m.
In November 2022 the Commerce Commission increased revenue limits for Powerco following a $1.3b programme of investment in its network over the previous five years.
The new revenue limits meant Powerco was allowed to increase lines charges to its customers, expected to add about $2 per month to the bill of a typical residential electricity user connected to its network.
In its submission, Powerco noted it was facing upward pressure on operating expenditure because of more advanced asset management, support needed for its capex programme and solutions becoming increasingly complex and larger.
It also discussed having a significant vegetation management challenge to prevent power outages across the network.
Last year Powerco highlighted uncertainty about the longer-term effects of the Government’s emissions reduction plan, which focuses on actions through to 2035 for the fossil gas sector to cut emissions to reach the country’s transition to net zero carbon by 2050.
“Our key message is for the Government to work with us, and other key parties, to develop a clear, achievable and equitable plan supporting the energy sector’s contribution for Aotearoa to grow to zero,” Powerco said.
The Government has received 101 submissions and is currently assessing feedback and identifying themes.
Rio Tinto could be a step closer to deciding what its future at the Tiwai Point aluminium smelter could look like, according to Jarden analysts Grant Swanepoel, Nevill Gluyas and Luan Nguyen.
The trio released a note this week pointing to Rio announcing its first renewable contract for aluminium assets in Australia and the fact Rio negotiators are back in New Zealand as positive signs of a deal being done here soon.
“We consider this announcement as a positive that Rio is committed to a long dated renewable future in Australasia - this latest announcement is a 25-year deal.
“This, combined with the news that Rio negotiators are currently in New Zealand, negotiating with both government and power suppliers, implies to us that a potential deal could be closer than previously believed, a positive for NZ gentailers and likely more for MEL [Meridian Energy] in the near term.”
The current deal expires at the end of this year. A decision on whether Tiwai continues to operate is of vital importance to the sector as it is the biggest single user of electricity in the country.
Last month Forsyth Barr analysts said they were hopeful of a new supply deal being done by March or April.
The Jarden analysts said with the Rio negotiators back in the country, it appeared there was potentially a deal to be done on the energy component, with sovereign “risk” (negotiations around carbon offsets) the only hold-up.
“It is our view that Rio will likely be seeking: 1) continuation of the free Carbon units allocation for intensive carbon users in trade-exposed industries, 2) recovery carbon costs on electricity emissions due to a more market related power price contract, and 3) reducing transmission charges.”
The Jarden analysts have a target price of $5.49 for Meridian with a neutral rating. Meridian’s shares opened on Thursday at $5.65.
For Rakon investor Mike Daniel, no news is bad news.
Daniel - who holds a 6.3 per stake - called the tech firm’s January 18 NZX filing on a potential takeover a “Clayton’s update” (a jibe that played on a classic 1970s ad for a non-alcoholic beverage with the tagline, “the drink you have when you’re not having a drink”).
On December 11, a mystery bidder made an unsolicited, non-binding indicative offer of $1.70 per share, valuing the Auckland-based company at $391m.
Its stock jumped from 62c to $1.20 on the offer but slipped to $1.18 after last week’s update, which offered no new information but reiterated that Rakon had formed a committee to assess the offer.
”Today’s opening price looks like to be about $1.16 - a massive discount to the offer price,” Daniel wrote in an email to Rakon chairman on January 19.
”In my view, the release language to some casts a high level of doubt the deal will proceed. This is clearly reflected by some small shareholders reacting nervously to yesterday’s release appearing to have gained the impression the deal is in trouble and deciding it’s too risky to wait for $1.70.”
Daniel told the Herald he still had no idea about the identity of the mystery bidder.
Rakon earlier said it was a “credible industry player”. The firm declined to comment. It offered no further update on the NBIO this week but did see its shares perk up to $1.28 after the firm announced its new MercuryX Integrated Circuit, aimed at the AI computing and data centre markets.
ForsythBarr earlier called the $1.70 bid “opportunistic”. It said telecommunications and other key markets for Rakon would rebound, restoring its profitability to the prior year’s levels, which saw its shares hit $2.22.
- additional reporting Tamsyn Parker and Chris Keall
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