Windfall dividend looms from Meridian's sale of huge Aussie wind farm stake

Monday 1st July 2013

The government looks set to receive a windfall whopper dividend from Meridian Energy following the sale of its 50 percent stake in the A$1 billion Macarthur wind farm in Victoria.

The sale, which valued state-owned Meridian's holding at A$659 million, comes right on balance date for what is likely to be Meridian's last financial year under 100 percent state ownership, with a float of up to 49 percent scheduled for the third quarter of this year, market conditions permitting.

Meridian chief financial officer Paul Chambers told BusinessDesk there would be no "special dividend" triggered by the sale, but that the net proceeds of the transaction would flow through to Meridian's underlying earnings, on which it has a policy of paying 90 percent as dividends.

Net profit from Meridian's four-year involvement in the development has also yet to be calculated, with the company's profit announcement, due early August, to contain "full details of the amount paid and full detail of the costs set against it."

"We haven't absolutely settled yet on the number," he said, with the "relatively complicated" task of calculating Australian capital gains tax still to be finalised.

However, it's clear that selling the half-stake in the Southern Hemisphere's largest wind farm ahead of the proposed partial privatisation means taxpayers will not be sharing most of the one-off gains with future private shareholders, if the sale of 49 percent of the state-owned power producer proceeds as planned in the third quarter of this year.

The purchaser of the 50 percent stake is Malaysia's largest independent electricity producer, Malakoff Corp, which also holds interests in power stations in Algeria, Bahrain and Saudi Arabia, and is constructing a US$600 million wind farm in Pakistan, according to a report in the Wall Street Journal on the Macarthur sale.

That report says Macquarie Capital advised Meridian on the sale, while ANZ advised Malakoff.

The involvement of the Australian federal government's A$10 billion Clean Energy fund attracted controversy when word of the impending deal leaked in recent weeks.

The CEF was criticised for making its first major investment as part of the sale of an existing Australian asset by a foreign company.

Malakoff, a subsidiary of MMC, is controlled by Malaysian tycoon Syed Mokhtar Al-Bukhary, one of the country's richest men, who also owns majority stakes in auto maker Proton and gas supplier Gas Malaysia.

Meridian entered into the joint venture with ASX-listed AGL Energy to build the 420 megawatt Macarthur development in 2010 under previous chief executive Tim Lusk. Its sale was triggered by the way Meridian's contracts were structured to deliver a "bond-like" return for at least the next two decades, but at rates of return higher than are available at today's historically low interest rates.

With falling interest rates globally, a key factor in the sale was "investor appetite for fixed rate products," said Chambers.

The transaction also reflects a drive by current chief executive Mark Binns to tidy up Meridian's balance sheet ahead of the partial privatisation of the most valuable of the government's electricity producers.

"While the Macarthur investment was intended to be held over the full project term, the low interest rate environment and the opportunity to invest in further wind farms in Australia provided a compelling reason to look at a sale and the reinvestment of funds in future renewable generation options in Australia," Binns said.

The sale "has delivered a return that reflects our early stage involvement in development and our investment in construction plus capitalised interest, holding costs and other expenses."

The SOE retains a presence in Australia with its Mt Mercer wind farm development in Western Victoria, and is looking at other opportunities across the Tasman, including rolling out its low-cost online retail brand Powershop.

In 2005 Meridian reaped a NZ$652.5 million profit from the A$1.46 billion sale of its Southern Hydro to AGL, then known as Australian Gas Light. The government then pulled out an $800 million special dividend from the sale.

BusinessDesk.co.nz

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