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Debt investors unfazed by Greens/Labour power risk

"Our initial thinking is we're not too concerned."

Mon, 29 Apr 2013

Investors in New Zealand power company bonds say they are unfazed by a proposal from the Labour and Greens parties to restructure the electricity market, which may lift the risk premium they demand to hold the debt.

Infratil today relaunched its sale of up to $100 million of June 2022 infrastructure bonds after tweaking its offer document to note the increased regulatory risk posed by the Labour and Green parties' plan. The offer had been suspended last Wednesday pending the changes.

"It really depends what happens if we get a change of government," says Grant Hassell, fixed interest manager at AMP Capital (New Zealand). "Our initial thinking is we're not too concerned.

"If there's a change of government there will be an extended period of time to get changes through. It gives you time to adjust your position."

"At the margin" investors may demand more risk premium to hold the debt of affected companies, he says.

BusinessDesk understands Contact Energy is currently in the market to sell some $300 million of debt offshore and has had questions about the opposition proposals.

"We are in the process of executing our refinancing strategy," spokesman Nicholas Robinson says. "If Contact issues a prospectus as part of our refinancing activities, we would incorporate a description of all key risks, including regulatory, which would include the NZ Power proposal if it was current at the time."

Contact, which has $705 million of debt coming due by May 2014, is rated BBB with a stable outlook by FitchRatings.

'From a rating agency point of view our base case assumption is that New Zealand's energy policy will not change," Isabelle Katsumata, director, corporates, at FitchRatings, told BusinessDesk.

"But a partial or full implementation of the opposition's policy – which we believe would be challenging to implement – could have a long-term negative impact on the creditworthiness of the 'gentailers'.''

The proposal may have ramifications for other utility companies. Mighty River Power, which sold $100 million of bonds in the domestic market in February and last week amended its share sale prospectus to reflect the opposition proposal, has $200 million of retail bonds maturing in May this year.

It is the smallest of New Zealand's four big so-called "gentailers" that generate power and retail it.

State-owned Genesis Power has $120 million of bonds coming due in March next year and TrustPower has $55 million maturing that month.


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Debt investors unfazed by Greens/Labour power risk