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Contact outlook remains negative

By Phil Boeyen, ShareChat Business News Editor

Monday 4th February 2002

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Ratings agency Standard & Poor's is keeping an eye on Contact Energy (NZSE: CEN) in case it decides to use profits to pay special dividends or fund acquisitions.

Although the agency has affirmed Contact Energy's ratings after Edison Mission Energy's failed takeover bid, it still has the company on negative outlook.

S&P says the power company's ratings were placed on CreditWatch with negative implications in early October last year, after EME announced its takeover offer.

"The outlook remains negative because although Contact Energy's cash interest and debt coverage ratios have improved as a result of the very high electricity prices in the winter of 2001, the prospects for the medium and long terms are less certain," S&P says.

"The negative outlook reflects uncertainty as to how the proceeds from the high electricity prices will be used. If the proceeds were used to pay special dividends or fund additional acquisitions in the next year or so, this would place additional pressure on Contact Energy's financial profile."

The agency says Contact Energy is New Zealand's most diversified energy company, with a presence in both electricity and gas businesses. It also has a diversified plant portfolio in both a fuel and geographic sense.

EME is the majority owner of Contact, and announced early Monday that its takeover offer for 100% of the company had failed to attract the required 90% acceptance threshold.

Many analysts have a valuation on Contact above EME's offer price, particularly because of its strong cashflow. Contact last year made a net profit of $130.7 million, a 35% increase on the previous year.



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