State-owned electricity company Mighty River Power is raising its dividend policy from 75% of earnings to between 90% and 110%, saying it has fewer investment needs in the near future and sweetening its attraction for investors in its partial privatisation.
The government plans to offer up to 49% of the Auckland-based firm, which owns the Mercury Energy brand and a string of hydro and geothermal power plants in the central North Island, for sale in the second quarter of next year.
That assumes court action by three Maori bodies, led by the New Zealand Maori Council, fails to block the sale in the courts and that market conditions are judged appropriate for the first of three SOE power company floats.
The Maori Council's challenge to the government's decision to proceed with the sale will be heard in the High Court in Wellington next week, with Crown advisers expecting an appeal if the council's case is unsuccessful.
The dividend policy change was announced in the company's latest statement of corporate intent for the years 2013 to 2015 and will apply to after-tax profit, adjusted for the impact of changes in the fair value in financial instruments and any accounting impairments.
Non-cash impacts of changes in the value of financial instruments typically creates volatility in reported earnings which does not reflect underlying performance.
The 75% dividend payout ratio had been in place since 2010 while MRP committed more than $1 billion in capital to a series of geothermal developments in New Zealand and offshore over the last five years.
However, demand for electricity has been static for the last three years, with no significant load growth forecast in the immediate future.
"MRP is now adjusting to the current outlook for New Zealand electricity supply and demand with less operating cash flow now allocated to new domestic projects and higher dividend flows to owners," chairwoman Joan Withers says in a statement.
By comparison, NZX-listed Contact Energy – formerly state-owned – targets an 80% payout ratio "over time", according to the company website, although chairman Grant King indicated at this year's annual meeting that higher capital returns to shareholders were also possible because it had few capital needs in the immediate future.
Ms Withers says "the board has gained confidence to increase the dividend payout ratio due to the successful execution of our geothermal strategy".
"In October we saw the first cash returns from our international investment through the GeoGlobal Energy (GGE) Fund and our Ngatamariki Power Station, near Taupo, is due for completion in mid-2013."
Dividends would be subject to working capital requirements, the medium term asset investment programme and a sustainable financial structure for the group, in term with the company's BBB+ credit rating, which was reaffirmed last month by Standard & Poor's.