Australia's Origin Energy Ltd. has entered into an underwriting agreement for the sale of the 53.09% shareholding in New Zealand Stock Exchange-listed energy generator and retailer Contact Energy Ltd. held by its New Zealand wholly owned subsidiaries. The transaction has been underwritten at a fixed price of $3.05 (NZD 4.65) per share.
The fully underwritten sale, which will be conducted via a bookbuild process while Contact shares are in trading halt, will provide $1.18 billion (NZD 1.8 billion) in net proceeds to Origin, which will be used to repay debt and redeem $131.24 million (NZD 200 million) of redeemable preference shares issued by Origin Energy Contact Finance No. 2 Ltd. A notice of redemption for the preference shares will be issued shortly after settlement of the sale.
Origin expects that, on completion of the sale, Origin’s credit rating from Standard & Poor’s will remain unchanged at BBB- (stable), while the credit rating from Moody’s will be revised from Baa2 (negative outlook) to Baa3 (stable), reflecting their view of a reduction in earnings diversity. Origin notes that while Contact’s earnings have been consolidated into Origin’s accounts, Origin’s access to Contact’s cash flow has been limited to 53.09% of dividends.
Karen Moses, Origin executive director of finance and strategy, said “This transaction provides a genuine reduction in financial risk through the repayment of Origin’s debt as well as the deconsolidation of Contact’s debt. The expected revision of Origin’s rating to Baa3 (stable) will harmonise the ratings from Moody’s and Standard & Poor’s and does not have a material impact on Origin.”
Origin will continue to hold upstream production and exploration interests in New Zealand. Settlement for the transaction is expected to occur Aug. 10.