Meridian offers $150m in bonds as key Tiwai Point decision looms

UPDATED: Meridian Energy [NZX:MEL] is considering a retail offer of up to $150 million of unsecured, unsubordinated fixed rate bonds to institutional and retail investors in early March, which is shaping as a crucial month for decisions on the future of its largest customer, the Tiwai Point aluminium smelter.

No funds are being sought for the bond offer yet and ANZ has been appointed as lead manager, co-managed by First NZ Capital and Forsyth Barr, but Meridian chief executive Mark Binns urged institutional analysts at a briefing to take up the offer, which was "better than putting money in the bank" at current low interest rates.

Binns told the briefing that a key event for both Meridian and New Zealand Aluminium Smelters, the Rio Tinto-controlled operator of the Tiwai Point smelter, would be next month's expected decision from the Electricity Authority on the way national grid transmission pricing would be divided among industry players and customers in the future.

Meridian and NZAS are lonely advocates of the EA's recommended approach, which would be based more closely on a "beneficiary pays" principle at present and could be worth as much as $60 million a year in savings for the smelter, which is thought to be unprofitable at current global metal prices but achieving cash breakeven and therefore unlikely either to close or reduce operations in the near future.

NZAS has the option on Jan. 1 next year to notify Meridian and its other electricity suppliers that it is terminating the contracts that account for around one-seventh of all the electricity generated in New Zealand. Renegotiation is also scheduled at that date for 172 Megawatts of the 572MW of contracted load that the smelter currently accesses.

"Any savings (from reduced transmission charges) are, in my opinion, going to feature strongly in the smelter's future," said Binns.

Commenting on the company's wind farm operations in Australia and ambitions to undertake further development, Binns noted that there were no new wind farms currently being built across the Tasman in spite of favourable wholesale electricity prices.

That was because there was political uncertainty about the longevity of the reinstated Renewable Energy Targets policy, which had been threatened prior to Prime Minister Tony Abbott's replacement last year by Malcolm Turnbull, and the fact that no supply contracts longer than five years were being offered. As a result, new wind developments were not currently bankable.

There was unlikely to be any new generation built in New Zealand until the aluminium smelter's future was more certain, Binns said.

Meridian shares closed 3 percent higher at $2.41, having declared an 85 percent imputed first-half dividend of 5.1 cents per share and an unimputed special dividend of 2.44 cents as part of the company's capital management strategy. Binns said share buybacks remained a possibility, but not while the share price and the board's view of appropriate value were as closely aligned as they are at present.

(BusinessDesk)