Grant Bradley

Aviation, tourism and energy writer for the Business Herald

Solid Energy float will attract foreign interest

Chairman John Palmer says Solid Energy will be a different kind of investment than the electricity companies, which have more stable revenue. Photo / Brett Phibbs
Chairman John Palmer says Solid Energy will be a different kind of investment than the electricity companies, which have more stable revenue. Photo / Brett Phibbs

Outgoing Solid Energy chairman John Palmer says the state-owned enterprise aims to be ready for partial sale late next year and will potentially attract more foreign interest than other energy companies because it will be a riskier investment.

The company is regarded as the most complex of the energy companies being primed for partial sale given its exposure to global commodity markets and the implications of carbon pricing for coal.

Palmer announced on Friday he would step down later this year even though his current term did not end until October next year.

He said it would give time for a new chairperson to be well established to lead the company through the partial listing period.

"It needs some continuity beyond that as well, and I'm not able to commit the time and energy that the company needs and deserves, said Palmer.

He has been a staunch advocate of the mixed-ownership model, under which up to 49 per cent of Solid Energy, Mighty River Power, Genesis Energy and Meridian Energy will be sold.

The Government also plans to sell down its 75 per cent stake in Air New Zealand to as low as 51 per cent under the plan.

Palmer said there was no question it made economic sense both from the good of the Crown accounts and the good of the companies.

The Mixed Ownership Model bill passed the committee stage in Parliament last week and is expected to pass into law tomorrow.

"The incredibly shallow emotional arguments being run against it - none of the arguments stack up," he said.

"For Solid Energy, access to capital will be important. Partial privatisation will assist that, with the profile of the company, and will also put much greater scrutiny on the company's performance."

Solid Energy has extensive lignite resources in Southland and there are long-term plans to turn the low-value coal into diesel in plants which will cost hundreds of millions of dollars.

The company is also running a coal-gasification trial underground in Waikato and has recently announced it has extensive coal-seam gas reserves in eastern Taranaki which would be costly to tap.

"There is no reason why the Crown should carry all the risk for these developments," Palmer said.

He said majority government ownership should nullify arguments being run against the sales process.

"To keep raising the bogey of what happened in the 1980s assets sales I think personally is intellectually dishonest."

Solid Energy would be a different kind of investment than the electricity companies, which have more stable revenue.

"Clearly the other energy companies, given the nature of the business, are a much more natural fit with retail IPOs, have more consistent cash flows, so logically fit into mum-and-dad share portfolios."

Solid Energy was a higher-risk company seen now as it is feeling the effects of a downturn in coal prices.

"We're a much different company. There will be those with higher-risk profiles who will be keen in having a stake in Solid Energy," said Palmer, 65. "There will be some [investors] from New Zealand, but some will inevitably come from abroad, and I don't think we should be frightened of that."

Restrictions on what proportion of the company any one shareholder can have were likely to be imposed.

The company was working on tight timelines to be in a position to go to the market by the end of 2013.

Palmer joined the board of Solid Energy in November 2006 and was appointed chairman two months later. He is also the chairman of Air New Zealand and Rabobank New Zealand and is a director of AMP.

He is also nearing the end of his term at Air New Zealand.

When reappointed last year he said it would be his last term but agreed to help the airline through its chief executive transition, a period which goes through to late next year.

Last week he announced Christopher Luxon would replace Rob Fyfe as Air New Zealand's chief executive, but said there was no decision on the exact timing of his ending his own role with the airline.

- NZ Herald

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