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Tuesday 22nd September 2009 |
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Contact Energy, the biggest utility on the NZX 50 Index, has retained $120 million from its profit distribution plan (PDP), giving it cash to help fund construction of new power plants and an underground gas storage facility.
Under the PDP, shareholders could elect to receive more stock in the company in lieu of cash dividends. They have the choice of retaining the shares or having Contact buy back some as a fully imputed taxable dividend. Of 16 million shares issued under the PDP, the company bought back 4.6 million, or 28%.
These shares will be cancelled, while 72% of shares will be retained by investors. The net impact of the transaction is the retention of about $71 million in cash, Contact said in a statement today.
The retained cash “allows for further investment in Contact’s capital growth initiatives,” managing director David Baldwin said.
Underlying earnings at Contact tumbled 31% in the year through June 30 as drought in the South Island crimped output from hydroelectric plants while constraints on the Cook Strait cable curbed the company’s ability to send electricity from the North Island, where prices were cheaper.
In the face of dwindling earnings, the company sold $550 million of retail bonds and instituted its PDP to bolster its balance sheet and provide funds to develop geothermal and gas-fired power plants and develop a gas storage project.
Shares of Contact fell 0.3% to $5.89 today and have declined 18% so far this year.
Fitch Ratings this month cut Contact’s credit rating to BBB from BBB+, saying the utility’s “significant” capital expenditure programme will weaken its credit metrics over the next two years.
Longer term, the additional capacity from the Stratford gas-fired plant and the gas storage facility at Ahuroa will improve the company’s operational flexibility, Gavin Madson, Fitch’s sia-Pacific Energy & Utilities team director, said in a September 8 statement.
Baldwin declined to give 2010 guidance when the company posted its results last month. He said Contact’s geothermal generation options are well positioned as the country’s most economic new generation projects.
The company is also increasing its production flexibility with development of options across wind, natural gas and hydro generation.
Businesswire.co.nz
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