New Plymouth Mayor Peter Tennent was yesterday at pains to point out the predicament the council faced if it continued with its 38.16% shareholding in Powerco.
“Powerco’s post-tax dividends to the council may well begin to tail off in the near future. We have clearly put ourselves and the community in a position of greater financial strength and reliability,” Tennent told EnergyReview.Net and other media when announcing that Brisbane-based Prime was paying NZ$2.15 per share to pick up a controlling stake in Powerco.
“We simply cannot rely long-term on receiving the same post-tax dividend levels from Powerco that we have enjoyed in the past.
“PricewaterhouseCoopers has also told us that Powerco’s current non-tax paying position is not sustainable. The result of this is that in future it may well pay its dividends two-thirds in cash and one-third in tax imputation credits.
“As the council is a non-tax paying organisation these imputation credits will be worthless to us. On current dividend levels this could mean us losing over six million dollars.
“Quite simply, before today, we had a $19.3 million dividend that was not sustainable, now we have $19.3 million plus that is almost guaranteed,” he told ERN.
Prime is to pay the council almost NZ$260 million, the Taranaki Electricity Trust NZ$80 million and Powerco Wanganui Trust NZ$25 million for their 53.65% stake in Powerco.
The way Prime has prepared the deal, the transaction will see 62.5% paid in cash and 37.5% paid in perpetual securities, presently yielding 8.5% per annum, to be reset every five years.
Tennent said that with the securities, the council would need less than a 7% from the cash element in order to achieve an annual return of NZ$19.3 million – the most recent Powerco dividend.
Yesterday Prime managing director Chris Chapman said Prime would now start a full takeover for all Powerco ordinary shares and unsecured subordinated capital bonds on issue, representing a total enterprise value (excluding transaction costs) of approximately NZ$1.815 billion, with the offer posted to Powerco shareholders and bondholders within the six weeks.
Critics - including Taranaki Chamber of Commerce chairman John Rae - had likened the deal to selling the British Crown Jewels.
