By RICHARD BRADDELL
WELLINGTON - Contact Energy has moved to shore up its flagging share price, yesterday announcing a buyback beginning on Thursday of up to 5 per cent of its shares.
The move is timely for its main shareholder, United States company Edison Mission Energy, which is subject to a covenant
on redeemable preference shares triggered by Contact's share price.
Edison issued $400 million in redeemable preference shares to New Zealand investors and banks to partly fund its $1.2 million purchase of 40 per cent of Contact last May.
The covenant, which does not come into effect until May 14, requires Edison to take remedial action, including cash payments, should Contact's share price go below $2.55.
That price has been in steady decline this year after tracking around $3.40 much of last year in expectation that Edison might lift its holding above 50 per cent.
But this year's slump was not helped when Edison early this month dashed hopes that it might boost its Contact shareholding after downgrading its own profit forecasts when two of its British power plants' earnings forecasts were slashed.
Edison's suggestion that it might sell out of the troubled British market was taken locally as a signal that it will not boost its Contact holding in the near-term.
While ratings agency Standard & Poor's confirmed Edison's credit rating, Moody's put it on watch for a possible downgrade.
Contact said yesterday that Edison did not intend to sell into the buyback.
Contact reported $155 million net profit for the year ended last September 30, up from $80 million the previous year.
The result included a net one-off gain of $40 million.
The buyback is expected to cost $70-80 million, increasing Contact's debt about 1 per cent.
Asset revaluations last year left Contact conservatively geared with debt about 30 per cent of debt plus equity.
Contact shares closed up 13c at $2.64.
