Origin sells out of Contact

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Contact Energy’s 53% shareholder origin Energy has sold all its shares in Contact to a range of local and overseas institutional and retail investors.

The deal was announced to the stock exchange this morning.

Origin has owned its stake for 11 years.

The sale is being managed and underwritten by Macquarie Capital at $4.65 a share, a 7% discount to the last market price of $5.02.

The price values Origin’s holding at $1.8 billion.

Origin’s directors Grant King, Karen Moses and David Baldwin will step down from Contact’s board on completion of the selldown.

Long-serving director Phil Pryke will assume the interim chairmanship. Contact chief executive Dennis Barnes, an Origin employee, is to stay on as a Contact employee.

In a statement, Mr Pryke thanked Origin for its support. "Today marks the start of an exciting new phase in Contact’s history. Our focus remains unchanged regarding the safe operation of our business, providing customers with the quality of service and products they expect and creating long-term value for our shareholders.”

Australian energy company Origin put the sale of its Contact stake on the table in a May presentation describing asset sales as among its options to improve balance sheet flexibility.

A special dividend payment by Contact in June, which used up imputation credits that could be lost in a change of control, was also seen as a pointer.

On Monday an energy supply deal for the power hungry aluminium smelter at Tiwai Point was agreed, ending a major source of uncertainty about New Zealand’s power market.

Contact’s part in the deal involved signing a contract with Meridian Energy for 80MW of supply to Tiwai for at least four years from January 2017. 

In a presentation filed to the NZX this morning, Contact said on August 17 it expected to report underlying earnings after tax of $161 million for the year to June.

Under a revised dividend policy it expects to pay 100% of underlying earnings in dividends, up from 80% previously.

In a statement to the Australian stock exchange, Origin said the proceeds of the sale would be used to repay debt and redeem $200m of preference shares issued by New Zealand subsidiary origin Energy Contact Finance No 2.

Mr King, Origin’s managing director, said: “Today’s announcement is consistent with Origin’s stated intention to continue to take action to reduce operating and capital costs, realign debt across group entities and, where appropriate, divest assets. The proceeds from the sale will provide increased financial flexibility in the short to medium term.”

The company said its credit rating from Standard & Poor’s would be unchanged at BBB minus following the deal, while Moody’s would downgrade its rating from Baa2 with negative outlook to Baa3 with a stable outlook.

Both Contact and Origin said they would not comment further until the transaction is complete, which is expected in about 24 hours.

Standard & Poor's said the negative impact on Origin of losing Conctact Enegy was offset by the debt reduction allowed by the sale. "Saying that, we forecast that the sale of Contact Energy will not result in a material improvement in Origin Energy's financial metrics over the next 

two-to-three years," it said.