Vector on negative credit watch as S&P gets dark on NZ regulatory regime

Simon MacKenzie
Vector 12-month price history (

Auckland lines company Vector [NZX: VCT]has had its BBB+ credit rating placed on negative credit watch after global rating agency Standard & Poor's decided New Zealand's regulatory regime is less stable and a higher risk than in other nations.

The notice means Vector's rating has a 50/50 chance of being cut over the next three months, though chief executive Simon Mackenzie said he didn't believe there would be any immediate financial or customer impact from the change because of the long-dated duration of the company's debt.

"Their assessment is that the regime is less stable than other regimes internationally and they see it as a higher risk," Mackenzie said. "Vector continues to work with the government and other agencies to establish a more mature and stable regulatory regime."

Last week S&P completed changes to how it rates corporate industrial and utility companies and yesterday placed 23 firms across Asia Pacific on either positive or negative credit watch.

Shares in Vector edged up 0.4 percent to $2.60 yesterday, and have shed 4.4 percent this year, lagging the 15 percent gain on the NZX All Index, a capital measure of domestic stocks, over the same period.

The notice comes a day after NBR ONLINE reported an Australian fund manager was refusing to invest in locally regulated firms due to the government's handling of the Commerce Commission-enforced cuts to Chorus's monopoly copper line services.

Local fund managers have warned the government's response, which has been to call in Ernst & Young Australia to run the ruler over Chorus's books before making any decision, was seen as slow and left investors in a heightened period of uncertainty when dealing with regulated firms.

Vector is also locked in a long-running battle with the Commerce Commission over how prices for regulated electricity and gas distribution services should be set, joined by several other regulated monopolies. A decision from a High Court merits review of the commission's methodologies has been due for some months.

On top of that has been the Opposition parties' plan to overhaul the electricity market if they win next year's general election by introducing a central buyer of wholesale electricity in a bid to provide cheaper retail power at the expense of investors in the electricity sector.


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Another victim of the Commerce Commission, perhaps it's time the government provided a more modern framework for the Commission that entitles a company with high cost of capital to make an appropriate return?

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Why on earth would Vector have a high cost of capital? They complain about regulatory risk because that is virtually the only real risk they face in the medium term. It's not like people are going to substitute wood fuel instead of electricity, nor are there competing technologies emerging for the distribution of electricity, and other network operators are hardly queing up to build a competing network. If Vector has a high cost of capital god save the rest of the country.

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