Cullen yesterday said he reluctantly approved New Plymouth District Council, Taranaki Electricity Trust and Powerco Wanganui Trust selling their combined 53.65% stake in the energy network company to Brisbane-based Prime. He said the process had become a shambles.
"The purchase complies with New Zealand's regulatory framework so the government cannot credibly intervene to prevent it and ministerial decisions under the Overseas Investment Act are subject to appeal in the courts.
“It is, however, with great reluctance that I am letting the deal proceed as there were aspects of the process that concerned me.”
Although the Audit Office had found the New Plymouth council was not required to consult ratepayers before deciding to quit its shareholding in Powerco, “consultation would have been desirable given the size and significance of the asset involved."
Cullen also described the Takeovers Panel decision, which favoured overseas Powerco investors over local minority shareholders as "unfortunate, given the shambles which ensued".
As reported in yesterday’s EnergyReview.Net, Powerco’s independent directors and senior officers, who hold shares or capital bonds, are transferring their addresses on the Powerco share register to overseas locations in order to get cash-only payments. They are recommending other shareholders do likewise and accept the Prime offer, while suggesting bondholders move their addresses overseas but reject the offer.
This is to avoid any payment in Prime’s controversial “Sparcs” (subordinated prime adjusting reset convertible securities) that some media commentators have labeled as junk bonds, saying Powerco shareholders are effectively being asked to lend their money to Prime so it can buy their shares from them.
The Grant Samuel report commissioned by Powerco directors is also wary of Sparcs. "The fact that Prime did not adopt the more conventional approach of making a separate underwritten issue of the securities may suggest that no institution was willing to underwrite the issue and there was uncertainty as to the underlying value of the Sparcs."
Grant Samuel believed the value of the Sparcs was 89-95 cents, but that this was “at best, very uncertain." It was likely they would trade at a substantial discount, particularly if there were a large number of sellers as a result of PricewaterhouseCoopers underwriting “excess” NPDC-TET Sparcs that could flow back onto the market, potentially depressing prices in the short to medium term.
Grant Samuel says Prime’s offer to pay bondholders entirely in Sparcs in unfair because Sparcs are "an inferior security to the Powerco capital bonds".
However, Prime Infrastructure managing director Chris Chapman says Prime is optimistic of reaching the 90% target for compulsory acquisition of Powerco and that Grant Samuels had valued all acceptance options at or above its NZ$2.15 per share offer.
“Our investment in Powerco is a beachhead for Prime; we are making a significant and long term commitment to investment in Powerco and New Zealand.”
