Vector to issue capital bonds, confirms 25% float possible

By NZPA

Wednesday 25th September 2002

Auckland lines company Vector said today it would issue up to $350 million in capital bonds, and confirmed it was considering a sharemarket float of up to 25 percent.

The bonds, worth $1 and paying an interest rate of at least 8.50 percent, will be used to help finance Vector's proposed acquisition of utilities company UnitedNetworks.

They would also provide a source of long-term funding for the company, Vector chairman Michael Stiassny told reporters today.

The bond issue contains two conditions. It will only proceed if the Vector takeover receives bank approval from UnitedNetworks' vendor, United States-based energy giant Aquila.

In addition, if Vector decided not to proceed with a share float within the next year, the interest rate paid to bond holders will rise a further 150 points to at least 9.75 percent.

If Vector proceeded with a 24.9 percent share offer, Auckland Energy Consumer Trust's 100 percent holding would be diluted to 75.1 percent.

"The company is working towards a public offer by September 30, 2003, but no absolute assurance can be made it will occur," Mr Stiassny said.

"The decision as to whether or not to proceed with an IPO will be made by the board .. and will be subject to shareholder (Vector) approval."

While acknowledging the bond structure linked to a share float was potentially more expensive for Vector than other funding options, Mr Stiassny said the recently revamped board had inherited the decision.

Three members, including Mr Stiassny, joined the board on September 11. The funding arrangement, which implied that a capital float was a good option, was in place prior to September 9.

"I think you could say the board that made that decision was of that view," Mr Stiassny said.

"The board has changed significantly, it does not at this time hold that view.

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

If a share float proceeded, bond holders would receive an entitlement for 50c worth of ordinary shares for every dollar of capital bonds they held.

The bonds are indexed to the 2006 December government stock, paying 225 points above that rate, and linked to the company's credit rating.

Lead manager ABN Amro Rothschild will underwrite up to $300 million of the bonds, and there will be $50 million in oversubscriptions

Vector and the trust are not guaranteeing the bonds.

The bond offer opens next week, and they are due to list on the New Zealand Stock Exchange from November 5. The interest payment date is on June 15.

AECT said in a statement it welcomed the financing options.

"The takeover, if successful, will see $2.3 billion in strategic electricity assets come back into New Zealand ownership," trust chairwoman Karen Sherry said.

A full takeover of UnitedNetworks will cost Vector around $1.5 billion.

Ms Sherry said she welcomed the long-term funding options for the transaction, rather than relying solely on costly bank debt.

Most trustees were elected on a total no-privatisation platform.

On Monday, UnitedNetworks shareholders were advised by independent directors and valuation firm Grant Samuel to accept Vector's $9.90 a share takeover offer.

The deal would make Vector the largest monopoly lines company in New Zealand.

Aquila, which owns 70 percent of UnitedNetworks, has already accepted the Vector offer, and is waiting for approval from its banks before the sale of its shares is finalised.

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