Mighty River vulnerable, says S&P

Mighty River has invested heavily in geothermal power. Photo / Supplied

Standard & Poor's has warned that Mighty River Power's credit profile is vulnerable to a potential increase in overseas investments and planned sizeable capital expenditure on new-generation projects.

The ratings agency has assigned a BBB+ long-term corporate credit rating and stable rating to the taxpayer-owned company's $100 million bond issue which settled yesterday and attracted nine investors.

It will use the funding for general corporate purposes, including paying down existing shorter-term facilities.

S&P said the rating reflected Mighty River's ability to maintain adequate headroom with its credit metrics relative to its liquidity thresholds.

"In our opinion, Mighty River Power's credit profile remains vulnerable to a potential increase in offshore investments in the near-to-medium term and the company's funding approach for such growth opportunities," the agency said.

The company's low-cost hydro generation and improving diversity - it has invested heavily in geothermal power and in Mercury Energy has a large retail arm - enhanced MRP's competitive position.

However, it was still vulnerable to poor hydrology as 70 per cent of generation comes from the Waikato River system and it also faced volatile prices in wholesale and retail markets.

In 2008 the company committed an initial US$100 million to develop a global geothermal business subject to investment and economic criteria being met.

It has a stake in geothermal exploration through a 25 per cent shareholding in GeoGlobal Energy. "MRP's pace of offshore growth can represent a risk to its business profile," S&P analysts said.

"At this stage we consider the likely pace and size of offshore investments to be modest."

The company last year delivered a net profit after tax of $159.6 million.

This was an increase of $48.7 million on the previous year.